Morning Commentary: Junk opens unchanged on Tuesday; Freedom Mortgage brings $500 million offer

By Paul A. Harris

Portland, Ore., April 3 – High-yield bonds opened unchanged on Tuesday on the back of moderately better stock prices and energy prices at mid-morning, a trader said.

Amid little other activity in the secondary market there was some trading in the recently minted Ply Gem Holdings Inc. 8% senior notes due 2026 (Caa1/CCC+) which were somewhat active, trading at par ¾ bid, 101 offered, unchanged, the source added.

The $645 million issue priced at par last Friday.

High-yield ETFs were up slightly at mid-morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 14 cents, or 0.16%, at $85.10 per share.

McDermott expected

In new issue activity, the market continued to await official word on the downsized bond deal from McDermott International Inc.

The latest, unofficial buzz in the market has the deal coming with a coupon of 10 5/8%, at a deep original issue discount of 95 to 96, to yield in the low 11% area, with pricing expected Tuesday.

The $1.3 billion offering of six-year senior notes (B2/B-) was talked late last week in the 10½% area, and the notes were expected to price before last Thursday's early close, only to be pushed back into the present week.

Early expectations were that the company could sell $1.5 billion in tranches of six-year notes and eight-year notes, with rates at 9% or slightly below, sources say.

Elsewhere, price talk was heard to have widened dramatically on American Greetings Corp.'s $325 million offering of eight-year senior notes (Caa1/CCC+).

Whisper backed up to the 10½% to 11% area, according to a trader, who added that the deal could remain in the market into the Thursday session.

Earlier talk and timing had the deal whispered at 8¼% to 8½% and pricing as early as Tuesday.

Freedom Mortgage on tap

Freedom Mortgage Corp. started a one-day roadshow on Tuesday for a $500 million offering of seven-year senior notes (expected ratings B2/B).

The debt refinancing deal is talked to yield 8¼% to 8½%, an investor said, and added that the Mount Laurel, N.J.-based residential mortgage company was drawn into the market by $500 million of reverse inquiry.

The bond offering, which is being managed by J.P. Morgan Securities LLC, is set to price on Wednesday.

Moderate Monday outflow

The daily cash flows of the dedicated high-yield bond funds were moderately negative on Monday, according to a bond investor.

High-yield ETFs sustained $107 million of outflows on the day.

Asset managers saw $165 of outflows on Monday.

Given the dramatic downward move in stocks, with the S&P 500 shedding more that 2.2% of its value on the day, the market may have been anticipating more substantial outflows, the investor said.

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