Morning Commentary: Junk tracks volatile crude oil prices; Post, AMAG bonds well bid in secondary

By Paul A. Harris

Portland, Ore., Aug. 13 – High-yield bonds were firm out of the gate on Thursday; however, by mid-morning they fell back to unchanged as the market became choppier, according to a trader.

The barrel price of West Texas Intermediate crude oil was down over a dollar on the day, the trader remarked, and attributed the chop in the junk market to the volatility in oil prices.

The benchmark California Resources Corp. 6% senior notes due Nov. 15, 2024 continue to show a strong correlation to moves in the price of crude oil, the trader said.

Those notes opened firmly on Thursday and were 76 bid, 76¼ offered, up from 74½ bid, 74¾ offered late Wednesday.

However by midday Thursday, amid falling oil prices, the California Resources 6% notes fell back to 75½ bid.

Wednesday deals outperform

Three bonds that priced on Wednesday were turning in strong performances in the Thursday secondary market, the trader said.

Two of them were issued by St. Louis-based cereal-maker Post Holdings, Inc.

The Post 7¾% notes due March 15, 2024 (B3/B) were 102 bid, 102½ offered at midday Thursday. 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. 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, which was in the low 7s on the 8.5-year paper and the high 7s on the 10-year paper.

And they needed that extra juice, the trader asserted, adding that both deals were doing pretty well.

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

Meanwhile the new AMAG Pharmaceuticals Inc. 7 7/8% senior notes due Sept. 1, 2023 (B3/B+) were also turning in a strong secondary market performance, the trader said.

The AMAG 7 7/8% bonds were 102¼ bid, 103 offered at midday Thursday.

The upsized $500 million deal (from $450 million) priced at par on Wednesday.

Oneok begins roadshow

The primary market was resting in the shade Thursday morning, with the only news being a single deal announcement.

Oneok Inc. began a roadshow for a $500 million eight-year senior bullet (Ba1/BB+).

The deal, which is being helmed by Citigroup Global Markets Inc., is set to price on Tuesday.

Only one other deal is on the active forward calendar as business expected to clear before the end of the present week.

KIK Custom Products Inc. (Kronos Acquisition Holdings Inc.) is scheduled to conclude a roadshow for its $390 million offering of eight-year senior notes (Caa2/CCC) on Thursday.

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

Joint bookrunner Barclays will bill and deliver. BMO, Nomura and Macquarie are also joint bookrunners.

Outflows reported

The dedicated high-yield bond funds saw cash outflows on Wednesday, the trader said.

High-yield ETFs saw $214 million of outflows on the day.

Asset managers sustained $60 million of outflows on Wednesday.

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