Midday Commentary: Massive sidelined cash, slim calendar create 'messy' secondary technicals

By Paul A. Harris

Portland, Ore., Feb. 26 - A massive amount of cash directed toward investments in high-yield bonds and the absence of a meaningful new deal calendar are combining to create "messy technicals" in the secondary market, as demand vastly outpaces supply, a trader said on Wednesday.

"Liquidity is horrible on the secondary side right now," the trader remarked, adding that there are bonds offered, but none are offered cheap.

The two biggest deals that priced on Tuesday are both trading well above new issue prices, the trader said.

TreeHouse Foods Inc.'s 4 7/8% senior notes due March 15, 2022 are 101¼ bid, 101¾ offered, the trader said. The $400 million issue priced at par on Tuesday.

The Regal Entertainment Group's 5¾% notes due March 15, 2022 (B3/B-) are perhaps a quarter of a point higher than the TreeHouse Foods bonds, the trader said. That deal, a massively upsized $775 million issue that was increased from $350 million, also priced on Tuesday at par.

In Europe the situation is much the same, according to a London-based debt capital markets banker.

Investors are chasing yield and bidding up bonds in the secondary in the absence of any real calendar.

The Darty Financements SAS' 5 7/8% senior notes due March 1, 2021 (/BB-) are 103 bid, 103½ offered. The deal, which came at par in a €250 million issue on Feb. 19, initially broke to 101 bid, 101½ offered and has gone steadily up since, the banker said.

There will be a calendar, the source added.

However it might not start to materialize until the second week of March.

"There is some potentially big M&A activity taking shape that we could possibly see ahead of Easter," the banker added.

Kerneos coming tight

In the euro-denominated primary market the Kerneos Tech Group SAS €200 million minimum tranche of seven-year fixed-rate senior secured notes (B2/B+/) is shaping up in the low 6% context, the banker said, calculating that this yield context could be seen as much as 125 basis points below fair value.

"Investors are taking these prices without hesitating," the sellsider remarked.

"They reason that it costs more to be on the sidelines, in cash, than it does to be invested in expensive paper."

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