Morning Commentary: Junk opens unchanged; Chesapeake bonds drop on ‘amendment’ news

By Paul A. Harris

Portland, Ore., Oct. 1 – High-yield bonds were unchanged in secondary trading heading into mid-morning on the East Coast of the United States, according to a trader in New York.

“Overall there has been decent volume,” the source said.

The Wednesday session saw better buyers, and that sentiment was carrying into early Thursday trading as well, the trader said.

High-yield ETFs were weaker heading into mid-morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG), at $82.60 per share, was down 29 cents.

The SPDR Barclays High Yield Bond ETF (JNK) was off 3 cents at $35.44 per share.

Chesapeake unsecured slides

Wednesday’s news that Chesapeake Energy Corp. made amendments to its revolver allowing it to incur an additional $2 billion of junior lien debt sent the company’s already battered unsecured bonds even lower on Thursday, the trader said.

The two most active issues are Chesapeake’s 6 5/8% senior notes due 2020 and its 5¾% notes due 2023, the source said.

The 6 5/8% notes were 67 bid, 68 offered, down 5 or 6 points on the day. They were 74 bid on Wednesday.

The longer maturity 5¾% notes due 2023 got as low as 60 bid on Thursday. They were 65 bid on Wednesday.

Valeant trading off lows

Bonds of Valeant Pharmaceuticals International Inc. were seeing modest price improvements on Thursday after dropping as much as 10 points on news earlier in the week that 18 Democratic members of a U.S. House of Representatives committee urged their chairman to subpoena documents related to price increases for Valeant’s heart drugs, Nitropress and Isuprel, the prices of which Valeant increased by 212% and 525%.

The Valeant 6 1/8% notes due 2025, a $3.25 billion issue, were trading at 96 bid, 97 offered, the trader said.

At their lows on Tuesday, they were 94 bid, 95 offered, having fallen on the news from a peak of around 103½ bid, 103¾ offered on Sept. 21.

New issues outperform

New issues priced with the present market volatility well underway, with conspicuously high coupons reflective of that volatility, continue to see demand, market sources said.

The Altice/Cablevision Systems Corp. unsecured notes, the 10 1/8% 7.25-year senior notes and the 10 7/8% 10-year senior notes (both B2/B) were 101 bid, 101¾ offered on Thursday, the trader said, adding that both had traded as low as 98 bid, 99 offered.

The 6 5/8% 10-year senior guaranteed notes (Ba1/BB-) were par ½ bid, 101 offered on Thursday. Those too had traded below par earlier in the week.

The $4.8 billion three-part Altice/Cablevision deal came on Sept. 25, when all three tranches priced at par.

Another example of paper that came with sufficient coupon to attract attention on the buyside were the recently minted Olin Corp. bonds, which were also trading at conspicuous premiums on Thursday.

The Olin 9¾% notes due Oct. 15, 2023 were 103½ bid, 104 offered, ups from par ¼ bid, par ¾ offered earlier in the week.

The 10% notes due Oct. 15, 2025 were 103¼ bid, 104 offered on Thursday, up from par 3/8 bid, par 5/8 offered earlier in the week.

Stonegate Pub talk is 99.5

The primary market was quiet Thursday morning, save for one news item out of London.

Stonegate Pub Co. Financing plc talked an £80 million add-on to its 5¾% senior secured notes due April 15, 2019 (existing ratings B2/B+) to price in the 99.5 area.

There were no updates on the timing. The deal was scheduled to be rolled out during an investor conference call early Thursday and to price thereafter.

Barclays is the bookrunner.

Mixed flows

The cash flows of the dedicated high-yield funds were mixed on Wednesday, according to a market source.

High-yield ETFs saw $161 million of inflows.

Actively managed funds, however, sustained $150 million of outflows.

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