Morning Commentary: American Greetings rockets into secondary; Change Healthcare, Vertiv on deck

By Paul A. Harris

Portland, Ore., Feb. 3 – High-yield bonds were better bid in quiet Friday morning trading on the back of a U.S. non-farm payrolls report that beat analysts' expectations, a bond trader said.

High-yield ETFs were higher at mid-morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.23%, or 21 cents, at $87.54 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $36.90 per share, was up a dime, or 0.27%.

Freshly minted paper from American Greetings Corp. rocketed into the secondary market.

The American Greetings 7 7/8% senior notes due Feb. 15, 2025 (Ba3/BB-) were 102½ bid on Friday morning.

The upsized $400 million deal (from $375 million) priced at 99.272 to yield 8% on Thursday.

The bonds came 25 basis points below the tight end of the 8¼% to 8½% yield talk.

The deal played to $2.8 billion of orders, according to a market source, who added that the top allocation was $10 million; 20 accounts got zero allocations, the source added.

Friday primary

The new issue market is active ahead of the weekend, with three deals teed up to clear before the Friday close.

Change Healthcare Holdings, LLC's downsized $1 billion offering of eight-year senior notes (B3/B-), a hot-topic deal throughout the week because of a novel equity clawback that was ultimately struck from the offer – is gangbusters, sources said on Friday morning.

The deal is said to be playing to a $4.25 billion book and is set to price on Friday, a trader said.

The offer, which was downsized from $1,235,000,000, came into the market with a novel equity clawback that would have allowed the issuer to take out 100% of the notes at graduating fractions of the coupon beginning at 25% of the coupon for the first nine months.

After investors pushed back against the provision, it was replaced with a conventional clawback for 40% of the issue at par plus the full coupon for the first three years.

The deal, which was talked in the 5 7/8% area (versus 6% to 6¼% early guidance) on Thursday, would have gotten done, perhaps 50 bps wider, had the company left the 100% equity clawback in place, the trader said.

Elsewhere sources are watching for Vertiv Intermediate Holding Corp. to price its $600 million offering of five-year PIK toggle notes (Caa1/B-) before the weekend.

Proceeds from the deal will be used to pay a cash dividend to the company's owner and repay $100 million of outstanding term loan debt.

Noting that Vertiv is a “PIK toggle holdco dividend deal,” sources say that the appearance of such transactions is a traditional sign of a red hot primary market nearing the pinnacle of its climb.

Price talk has climbed that ladder since mid-week, a source said.

Recently talk in the 12½% area has been heard, up from earlier guidance of 10¼% to 10½%.

And in the European primary market Marcolin SpA tightened price talk on its €250 million offering of six-year senior secured floating-rate notes (B2/B) to Euribor plus 425 bps at par.

That talk is 50 bps tight to earlier spread talk of Euribor plus 475 bps at par.

Timing is accelerated.

The deal is expected to price on Friday, whereas it had previously been expected to remain in the market into the week ahead.

Thursday inflows

Cash flows for dedicated high-yield bond funds were positive on Thursday, a trader said.

High-yield ETFs saw $283 million of inflows on the day.

Actively managed funds saw $20 million of inflows on Thursday.

The news follows a Thursday afternoon report from Lipper US Fund Flows that the dedicated junk bond funds saw $413 million of net inflows for the week to Wednesday's close.

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