Morning Commentary: Mallinckrodt, Targa bonds above issue prices; whispers heard on Frontier deal

By Paul A. Harris

Portland, Ore., Sept. 10 – High-yield bonds were unchanged to slightly weaker heading into midday on the East Coast of the United States, according to a trader based in New York.

The iShares iBoxx $ High Yield Corporate Bd (HYG) shares were $86.37 heading into midday, up a nickel.

SPDR Series Trust - SPDR Barclays High Yield Bond ETF (JNK) was a penny higher at $37.02.

The Wednesday session saw the first dollar-denominated new issues to clear the market thus far in September, and both remained above new issue prices on Thursday but were about ¼ point off their highs.

The Mallinckrodt International Finance SA/Mallinckrodt CB LLC 5 5/8% senior notes due Oct. 15, 2023 (B1/BB-) were par bid, par ½ offered heading into midday. The $750 million issue priced at par on Wednesday.

Meanwhile the Targa Resources Partners LP/Targa Resources Partners Finance Corp. 6¾% senior notes (Ba2/BB+) were par bid, par ¼ offered heading into midday. The $600 million issue, upsized from $400 million, also priced at par on Wednesday.

Frontier whisper

Early guidance and indications of demand for the Frontier Communications Corp. $6.6 billion three-part offering of senior bullet notes (expected ratings Ba3/BB-) are circulating in the market, sources say.

The five-year notes are whispered at 9¼% and are said to be playing to $1.25 billion of demand, according to a trader.

The seven-year notes are whispered at 10 7/8% and are said to be playing to $1.3 billion of demand.

And the 10-year notes are whispered at 11½% and playing to $3.5 billion of demand.

Tranche sizes remain to be determined.

The deal began a roadshow on Tuesday and is set to price in the early to middle part of the week ahead.

William Lyon on tap

There was a slight amount of primary market news on Thursday morning.

William Lyon Homes, Inc. announced plans to price a $50 million tack-on to its 7% senior notes due Aug. 15, 2022 this afternoon via bookrunner Credit Suisse.

The Newport Beach, Calif.-based homebuilder plans to use the proceeds to pay down a portion of its revolver.

The original $300 million issue priced at par in August 2014.

NGPL bonds up 5 points

Topical news in the high-yield secondary was overshadowed by news from emerging markets, the trader said.

News that Standard & Poor's lowered its long-term foreign-currency sovereign credit rating on the Federative Republic of Brazil to a speculative grade BB+ from BBB- have caused the bonds of Petroleo Brasileiro SA to plummet, the source said, adding that they were down 5 points to 8 points since the rating news.

Among high-yield corporates from the industrialized world, the bonds of NGPL PipeCo LLC were up a solid 5 points on news that Natural Gas Pipeline Co. of America LLC announced an agreement with Corpus Christi Liquefaction, LLC, a subsidiary of Cheniere Energy, Inc., to provide 385,000 dekatherms per day of southbound natural gas transportation capacity on NGPL’s expanded Gulf Coast mainline system for a 20-year term.

The NGPL PipeCo 9 5/8% senior secured notes due June 1, 2019 were 98½ bid, 99 offered on Thursday, up from 92½ bid on Wednesday.

The NGPL PipeCo 7.119% senior notes due Dec. 15, 2017 were also 98½ bid, 99 offered at Thursday midday, up from 93 bid on Wednesday.

Flat flows

The cash flow of the dedicated high-yield bond funds were basically flat as the most recent reporting period came to an end at Wednesday’s close, according to the trader.

The funds were tracking $50 million of aggregate inflows on the week, the source added.

The high-yield market keeps an eye on weekly fund flow reports from Lipper-AMG as an indication of the cash being put to work in the asset class.

The most recent weekly fund flows numbers, covering the week that began on Sept. 3, are expected later Thursday.

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