Morning Commentary: Early bid for junk fades as crude drops below $28; LeasePlan talk awaited

By Paul A. Harris

Portland, Ore., Feb. 10 – High-yield bonds smartened at the Wednesday open but gave ground as crude oil prices fell, according to a trader based on the East Coast of the United States.

Junk was grinding higher without a lot of conviction heading into the mid-morning, the source said.

The barrel price of West Texas Intermediate crude for March 2016 delivery was 17 cents better at $28.11 heading into the New York mid-morning. However earlier in the session the price swooped well below the $28 mark.

Energy names were moving in high correlation with oil prices. The badly beaten up bonds of Chesapeake Energy Corp. were better bid for early Wednesday, up a point or two, but that bid faded along with the crude price, the trader said.

Among recent issues, the Charter Communications, Inc. 5 7/8% senior notes due April 1, 2024 were a point or so below new issue price at 98¾ bid, 99¾ offered on Wednesday, the trader said.

The $1.7 billion issue priced at par last Thursday but was a little sloppy out of the gates, the source remarked.

LeasePlan pushback

In the London afternoon high yield was slightly better, according to a syndicate banker based there.

Bonds were firmer along with the indexes, and there was some short covering, the banker said, but added that a positive catalyst is difficult to find.

There was some selling among real money accounts on Tuesday in anticipation of sizable outflows, the banker said.

During January dedicated high-yield bond funds saw €1.15 billion of outflows, the source said.

The market awaits price talk on LeasePlan Corp. NV, one of only two deals on the road.

However LeasePlan is seeing some pushback from investors, in line with the volatility in the financial space and intense pressure on bank stocks, as well as recent negative headlines about the fortunes of Deutsche Bank, the sellsider said.

None of it is helping the LeasePlan deal.

The company is selling €1.55 billion equivalent of senior secured notes (B1/BB+) in three tranches: euro-denominated and dollar-denominated five-year notes and euro-denominated seven-year notes, with tranche sizes to be determined.

Guidance on the euro-denominated five-year bonds is now in the 8% range, whereas they had come with early guidance in the high 6% to low 7% range.

The dollar-denominated five-year bonds, which have been discussed as coming 50 basis points behind the euro-denominated paper, is now being guided in the mid 8% range, which is up from the low-to-high 7% range.

And the euro-denominated seven-year bonds, which had been discussed in the context of 30 bps behind the euro-denominated five-year paper, appears to need an extra concession to the market and could instead come 50 bps behind the five-year bonds.

The book building is expected to go on until Thursday.

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