Morning Commentary: Junk trades lower Thursday morning; Yum!, Wesco on deck

By Paul A. Harris

Portland, Ore., June 2 – Junk bonds traded lower on Thursday morning, according to a high-yield portfolio manager.

That’s after the market was “sneaky-weak” on Wednesday, the investor added.

High-yield ETFs were flat to slightly lower heading at mid-morning New York time. The iShares Trust - iShares iBoxx $ High Yield Corporate Bond ETF (HYG) was off a nickel, or 0.07%, at $83.29 per share. SPDR Series Trust - SPDR Barclays High Yield Bond ETF (JNK), at $35.02 per share, was down 4 cents, or 0.1%.

High-yield ETFs saw big outflows of $676 million on Wednesday, the investor said. Actively managed funds were positive on the day, however, with $55 million of inflows on Wednesday.

Western Digital rebounds

Although good news in the technology sector has not been easy to come by, bonds of Western Digital Corp. have staged a conspicuous rally in recent days, the investor said.

The Western Digital 10½% senior notes due April 1, 2024 (Ba2/BB+/BB+) were 103½ bid on Thursday morning, the investor said, adding that those notes traded below par for a while.

The massive $3.35 billion issue priced at par on March 30.

Wesco, Yum! on deck

In the primary market Yum! Brands Inc. downsized its two-part offering of senior notes (B1/BB) to $2.1 billion from $2.3 billion, shifting the proceeds to its concurrent term loan.

Official price talk circulated. The deal is coming in tranches of eight-year notes, which are non-callable for three years and are talked in the 5% area, and 10-year notes, which are non-callable for five years and talked to yield in the 5¼% area.

Talk on the eight-year notes comes at the wide end of the 4¾% to 5% early guidance. Talk on the 10-year notes, meanwhile, comes on top of guidance which had them yielding 25 basis points behind the eight-year notes.

The deal is oversubscribed, with $5.25 billion of orders evenly split between both tranches, an investor said.

Final tranche sizes remain to be determined.

Books close at noon ET, and the deal, via left bookrunner Goldman Sachs, is set to price thereafter.

Meanwhile Wesco Distribution, Inc. plans to price a $350 million offering of eight-year senior notes (existing ratings B1/BB-) in a Thursday drive-by.

Early guidance has the deal coming with a yield in the 5½% area, an investor said.

Left bookrunner Goldman Sachs will bill and deliver for the debt refinancing deal.

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