Morning Commentary: Pharmaceuticals higher as possible path through opioid mess appears

By Paul A. Harris

Portland, Ore., Oct. 16 – Pharmaceutical names in the junk market were substantially higher on Wednesday morning as news of a proposal to settle their liabilities related to the opioid addiction crisis in the United States surfaced just days before a trial is set to commence in federal court in Cleveland, a bond trader said.

The Mallinckrodt International Finance SA/Mallinckrodt CB LLC 5½% senior notes due April 2025 were up 3 points to 4 points, at 33¼ bid, on a view taking hold among investors that there may be light at the end of this extremely dark tunnel, the trader said.

The source of that light is a settlement proposal from Israel's Teva Pharmaceutical Industries that would involve giving away more than $15 billion of drugs over the course of 10 years, the trader recounted, noting that investors like the fact that such a proposal, should it gain traction, would potentially circumscribe the pharmaceutical companies' liability, and allow damages to be paid out over the course of time, rather than all at once.

European primary show

Although there are dollar-denominated bonds set to price before Wednesday's close, the primary market spotlighted European credits in the morning's news.

England's Merlin Entertainments plc launched approximately £635 million equivalent of eight-year senior notes with tranche sizes and final pricing.

The deal includes $410 million of notes launched at 6 5/8%, 37.5 basis points inside of the low end of the 7% to 7¼% price talk.

The company also launched €370 million of the notes at 4½%, again 37.5 bps inside of the tight end of price talk in the 5% area.

Netherlands-based cable operator VodafoneZiggo commenced marketing 10.25-year senior secured notes (expected ratings B1/B+/BB) in dollar- and euro-denominated tranches, both benchmark sizes.

And Evoca SpA is in the market with a €550 million offering of seven-year senior secured floating-rate notes (B2), sources say.

Tuesday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Tuesday, according to a market source.

High-yield ETFs saw a whopping $838 million of inflows on the day.

Actively managed high-yield funds saw $25 million of inflows on Tuesday, the source said.

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