Morning Commentary: High yield flat to slightly higher; distressed Abengoa bonds bounce from lows

By Paul A. Harris

Portland, Ore., Aug. 14 – High-yield bonds were flat to slightly higher heading into the Friday midday.

The topic du jour continued to be the distressed dollar-denominated bonds of Spain-based renewable energy company Abengoa SA.

Abengoa’s 8 7/8% notes due 2017 were 59 bid, 60 offered, and the less liquid 7¾% notes due 2020 ($450 million outstanding) were 57 bid, 58 offered on Friday morning, according to a bond trader in New York.

Both had been trading in the mid-to-high 90s in late July.

The bonds went into free fall after Abengoa management decided to monetize treasury shares prior to announcing lower cash flow guidance, and maintaining that the monetization took place prior to the company being aware that it would report the lower guidance, according to sources.

“Nobody believes management,” a high-yield portfolio manager said on Friday morning.

That manager had Abengoa dollar-denominated paper at 52 bid, up from 42 bid on Thursday.

Looking to other sectors, with a slight improvement in crude oil prices, the energy benchmark, California Resources Corp.’s 6% notes were 74¾ bid, 75¾ offered, unchanged to slightly lower, the portfolio manager said.

Primary market quiet

The new issue market appeared poised to spend a quiet mid-August Friday with no deals likely to price, sources said.

KIK Custom Products Inc. (Kronos Acquisition Holdings Inc.) wrapped up the roadshow for its $390 million offering of eight-year senior notes (Caa2/CCC) on Thursday, according to a portfolio manager.

Formal talk has yet to surface. However earlier in the week the deal was being discussed in the mid-9% yield context.

That talk has moved 100 basis points higher, sources said Friday.

Guidance on the deal is in the mid-to-high 10s, to as high as 11%, a bond trader said.

Timing on the deal was unclear heading into midday, according to an investor, who added that the ball appears to be in management's court.

The recently priced Post Holdings, Inc. bonds were basically unchanged on the day.

Post’s 7¾% notes due March 15, 2024 (B3/B) were 102 3/8 bid, 102 7/8 offered Friday morning. The notes priced at par in an $800 million tranche on Wednesday.

Post’s 8% senior notes due July 15, 2025 (B3/B) were 102¼ bid, 102¾ offered, unchanged to slightly lower, the trader said. The 8% paper came Wednesday in a $400 million tranche.

Both tranches came at the wide end of talk and well wide of earlier guidance (low 7s on the 8.5-year paper, high 7s on the 10-year).

Post’s Wednesday transaction saw $200 million shifted to the shorter-duration tranche from the long tranche, which reflected the demand, the trader added.

However an investor who played the deal reported receiving a poorer allocation of the long-duration paper than the shorter-duration notes.

Mixed flows

On Thursday Lipper-AMG reported that the dedicated high-yield funds sustained $1.201 billion of outflows for the week to Wednesday’s close.

Of that amount, about 80% came out of high-yield ETFs, an investor said.

Meanwhile, in the most recent flow information, daily flows on Thursday were mixed, with high-yield ETFs seeing $262 million of inflows, while asset managers sustained $215 million of outflows on Thursday.

© 2015 Prospect News.
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