Morning Commentary: Junk opens flat to weaker; Telecom Italia driving by with €750 million

By Paul A. Harris

Portland, Ore., Jan. 13 – The junk bond market opened flat to weaker on Wednesday, according to a trader based on the East Coast of the United States.

High-yield ETFs were lower at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 23 cents, or 0.29%, at $79.25 per share. SPDR Barclays High Yield Bond ETF (JNK), at $33.30 per share, was down 21 cents, or 0.63%.

ETFs sustained big daily cash outflows of $684 million on Tuesday, the trader said.

Actively managed funds saw $290 million of outflows on Tuesday.

Meanwhile both dollar-denominated issues that have come in the new year continue to trade in the secondary market at smart premiums.

The Microsemi Corp. 9 1/8% senior notes due April 15, 2023 (B2/B+) were at 103¾ bid, 104¾ offered at mid-morning, according to the trader, who added that earlier they had gotten as high as 104 bid, 105 offered.

The $450 million issue, the first to be syndicated in 2016, priced at par last Thursday.

Pinnacle Foods Inc.’s 5 7/8% senior notes due Jan. 15, 2024 (B2/B+) were at 101¾ bid, 102¼ offered on Wednesday morning.

The $350 million issue priced at par on Monday.

Telecom Italia driving by

In the primary market, Italy’s Telecom Italia SpA (Ba1/BB+/BBB-) is in the market with a €750 million drive-by offering of eight-year senior notes.

Final talk is mid-swaps plus 305 basis points, according to a London-based sellside source.

That spread talk tightened from earlier whispers of 305 bps to 310 bps.

The deal was launched into the market earlier Wednesday at a benchmark size with initial guidance of mid-swaps plus 320 bps.

Deutsche Bank, RBS, SG CIB and UniCredit are the joint bookrunners.

There was no fresh news in the dollar-denominated primary market.

GCP Applied Technologies Inc., which is to be spun off from W.R. Grace & Co., was scheduled to start its roadshow Wednesday in New Jersey for a $525 million offering of seven-year senior notes (B1/B+).

The Goldman Sachs-led deal, to fund a distribution to W.R. Grace & Co.-Conn., a direct subsidiary of W.R. Grace, and for general corporate purposes, is set to price in the week ahead.

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