Morning Commentary: Junk opens weaker; new HD Supply trades well; T-Mobile brings $1 billion

By Paul A. Harris

Portland, Ore., March 29 – Junk was modestly weaker along with equity prices on Tuesday morning, according to a portfolio manager, who was marking cash bonds ¼ point lower.

High-yield ETFs were also down heading into the New York mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was 19 cents lower, or 0.23%, at $80.79 per share. SPDR Barclays High Yield Bond ETF (JNK), at $33.91 per share, was down 7 cents, or 0.21%.

A pair of dollar-denominated high-yield deals priced on Monday.

Of the two, HD Supply, Inc.'s new 5¾% senior notes due April 15, 2024 (B3/B) were turning in the better performance in Tuesday morning’s secondary market, at par ¾ bid, 101¼ offered, the portfolio manager said.

The $1 billion issue priced at par on Monday.

The new Surgery Partners, Inc. 8 7/8% senior notes due April 15, 2021 (Caa2/CCC+) were more “sideways” on Tuesday morning, at par 1/8 bid, par 5/8 offered, the manager said.

The notes, issued by subsidiary Surgery Center Holdings, Inc., priced at par in a $400 million deal on Monday.

T-Mobile cranking tighter

In the primary market, T-Mobile USA, Inc. rolled out a drive-by $1 billion offering of eight-year senior notes on Tuesday.

The capital expenditures deal kicked off with initial yield guidance in the 6¼% area, a trader said.

Watch for that pricing to grind lower, the portfolio manager warned, adding the expectations are that the yield could tighten to 6%.

Deutsche Bank Securities Inc., Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Barclays and Goldman Sachs & Co. are managing the sale.

Elsewhere in the primary market talk is widening on Western Digital Corp.'s mammoth $5.6 billion two-part deal, sources said Tuesday.

Guidance has moved to 7% from the low sixes on a $1.5 billion tranche of split-rated seven-year senior secured notes (Ba1/BBB-/BBB-) and to 10% from the 9% area on a $4.1 billion tranche of straight speculative-grade eight-year senior unsecured notes (Ba2/BB+/BB+).

Timing on the deal, which kicked off during the middle of the present month, remained uncertain.

The technology sector has generated some negative headlines recently, an investor observed on Tuesday.

That said, Western Digital should be able to get the deal – backing the acquisition of SanDisk Corp. – over the finish line, provided there is sufficient yield, sources say.

Once they get there, the accounts are apt to pile in, the investor remarked.

Mixed flows

The cash flows of the dedicated high-yield funds were mixed on Monday, the portfolio manager said.

The flows of the high-yield ETFs were relatively flat at positive $20 million on the day.

However actively managed funds sustained $35 million of outflows on Monday.

Dedicated bank loan funds, meanwhile, were also negative on the day. The loan funds saw $45 million of outflows.

© 2015 Prospect News.
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