Morning Commentary: Toys ‘R’ Us bonds rebound; House of Fraser on deck; funds see outflows

By Paul A. Harris

Portland, Ore., July 28 – High-yield bonds were unchanged to slightly weaker on Tuesday morning, sources said.

However there was some improvement in the bonds of Toys "R" Us, Inc.

The Toys “R” Us 10 3/8% senior notes due Aug. 15, 2017, the most active issue, were 80 bid on Tuesday morning.

Those bonds, which were as high as 83 bid last week, traded down to 75½ bid on Monday on news that insurance companies are cutting back on their credit insurance coverage for the Wayne, N.J.-based toy retailer’s vendors, putting those vendors at risk of not being paid in the event of a bankruptcy.

The Monday news may have been overblown, the trader remarked, adding that investors appeared to be getting back into the name on Tuesday.

Elsewhere the bonds of AK Steel Corp. were up on news that the company’s earnings top analysts' expectations.

The AK Steel 7 5/8% senior notes due Oct. 1, 2021 were up a couple of points at 62 bid, 63 offered on Tuesday morning, a trader said.

Energy mostly unchanged

With crude oil prices slightly lower on the day, junk bonds in the beaten-up energy sector were largely unchanged on Tuesday, sources said.

There was not a lot of activity in the California Resources Corp. 6% senior notes due Nov. 15, 2024, a liquid issue, on Tuesday, a trader said, spotting the notes at 78½ bid, 79 offered, basically unchanged.

However those notes saw a lot of activity on Monday.

Among more recent energy issues, WPX Energy, Inc.’s bonds were unchanged to ¼ point weaker on Tuesday.

The WPX Energy 7½% notes due Aug. 1, 2020 were 99¾ bid, par ¼ offered on Tuesday, unchanged.

The 8¼% notes due Aug. 1, 2023 were also 99¾ bid, par ¼ offered, down ¼ point.

Both issues priced in $500 million tranches at par on July 17.

House of Fraser talk

The primary market was mostly quiet on Tuesday morning, sources said.

There may not be anything major going on in the new issue market until after Labor Day, a syndicate banker said.

There was one news nugget out of the European primary market, which has generated the lion's share of the new issue news during the past 10 days.

House of Fraser (Funding) plc talked its £175 million offering of five-year floating-rate senior secured notes (B3/B) with a Libor spread in the 575 basis points area at 99.

The deal, via bookrunner HSBC, is expected to price Tuesday.

Outflows on Monday

The dedicated high-yield funds saw cash outflows on Monday, according to a trader.

High-yield ETFs sustained $153 million of outflows on the day.

Asset managers saw $15 million of outflows.

Dedicated bank loan funds sustained $55 million of outflows on Monday.

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