Morning Commentary: Recent junk issues trade mixed; liquidity dwindles as holiday nears

By Paul A. Harris

Portland, Ore., July 2 – Liquidity in the high-yield bond market appeared low and dwindling on Tuesday morning, sources said.

Numerous market participants have devised means by which to take days off surrounding the upcoming Independence Day holiday in the United States, according to an investor, who added that the high-yield crowd seems thin, and much of it headed for the exits until after the Fourth of July.

The exuberance that took hold of the capital markets on Monday may have dissipated somewhat, the investor added.

Hopes that the Federal Reserve Bank's Federal Open Market Committee will decrease the Fed Funds rate by 50 basis points when it meets at the end of July seem to be fading, with some wondering if the Fed will even see fit to ease the rate by 25 bps, given apparent progress in trade negotiations between China and the U.S., the investor remarked.

With U.S. stock indexes flat to slightly negative, high-yield ETF shares were better at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.22%, or 19 cents, at $87.01 per share.

High-yield bonds were basically unchanged on the morning, according to a trader in New York.

Among recent junk issues the Sirius Computer Solutions, Inc. 11% senior notes due July 2027 (Caa1/CCC+) gave up a little ground on Tuesday morning, relative to Monday prices.

Those notes were par bid, 101 offered Tuesday morning, the trader said.

The $300 million issue priced at par last Thursday.

The deal, backing the leveraged buyout of Sirius Computer by Clayton, Dubilier and Rice, came with a covenant package that was hotly contested right up to the 11th hour, sources said.

The Allied Universal Holdco LLC 6 5/8% senior secured notes due July 2026 (B3/B-/BB-) also retreated from Monday highs.

Those notes were 101½ bid, 101 7/8 offered on Tuesday versus a Monday close of 101 7/8 bid, 102 1/8 offered, the trader said.

The $1 billion tranche priced at par last Thursday.

The Hexion Inc. 7 7/8% senior notes due July 2027 (Ba3/B-) were slightly better on Tuesday at 101 bid, 101½ offered.

The $450 million issue priced at par on June 25.

And with the barrel price of West Texas Intermediate Crude for August 2019 delivery off sharply on the morning at $57.52, down 2.66%, or $1.57, the California Resources Corp. 8% senior secured second-lien notes due December 2022, a big liquid issue employed by high-yield bond investors for the purpose of tracking crude oil prices in the junk index, were unchanged at 74¾ bid, the trader said.

Quiet primary

With an “Independence Holiday Week” underway for some lucky market participants, the shutters came up in the new issue market on Tuesday, sources said.

They may stay up into the early-to-mid part of the July 8 week, according to the trader.

One deal, a holdover from mid-June, remains in the market, sources say.

Although it has been radio silence for over a week, Canada's Alpha Auto Group is a work in progress, according to an investor, who believes that the Toronto-based automotive group is still intent on raising cash in the high-yield bond market.

The company marketed $225 million of five-year notes on a roadshow during the June 17 week. Initial talk had that offering coming at 8% to 8¼%.

Late in the June 24 week a trader reported hearing word of a revived Alpha Auto deal at 11%.

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