Morning Commentary: WeWork down as investors anticipate more leverage; primary reactivates

By Paul A. Harris

Portland, Ore., July 8 – As high-yield market participants began resuming their places, with some having turned last week's Independence Day holiday into an extended weekend, liquidity was low and the index unchanged in the early going on Monday, according to a bond trader in New York.

With the Dow Jones industrial average down 125 points at midmorning, high-yield ETF shares were trading lower.

The iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 16 cents, or 0.18%, at $86.83 per share.

The CDX HY32 index of high-yield credit default swaps was 0.284 basis points lower at 107.375 bid, 107.455 offered, a hedge fund manager said.

Bonds of WeWork Cos. Inc. plunged on the back of a Wall Street Journal story that the cash-hemorrhaging office space management firm is planning to raise an additional $4 billion in the debt capital markets ahead of its anticipated initial public offering, sources said.

The WeWork 7 7/8% senior notes due 2025 were 97¼ bid, Monday morning, according to the New York-based trader.

Last week those bonds were 99¾ bid, the source added.

The sentiments of its bondholders notwithstanding, WeWork may be buoying its anticipated IPO by demonstrating to potential stock buyers that it has power to raise major league cash in the debt capital markets, a source said.

Elsewhere the single-B rated Deutsche Bank AG 7½% perpetuals were three points lower on Monday, at 91¼ bid, 91½ offered, as the institution undertook massive layoffs following its reported €2.8 billion second quarter loss, the trader said.

Among recent issues the Antero Midstream Partners LP 5¾% senior notes due January 2028 (Ba3/BB+) were down 3/8 points on Monday at 98 bid.

Antero was slightly down despite the fact that energy prices have been reinvigorated by concerns about disruptions that could be set in train by geopolitical tensions in the Persian Gulf.

The barrel price of West Texas Intermediate crude oil for August 2019 delivery was up 0.7%, or 40 cents, at $57.91 on Monday.

Primary reactivates

A new issue calendar began to take shape on Monday.

E.W. Scripps Co.’s plans to conduct a roadshow for a $400 million offering of eight-year senior notes.

Initial guidance has the deal coming to yield in the low-to-mid 6% area, according to a trader.

Morgan Stanley & Co. LLC, Wells Fargo Securities LLC, SunTrust Robinson Humphrey Inc., BofA Securities Inc., Fifth Third Securities Inc., PNC Capital Markets LLC and U.S. Bancorp Investments Inc. are the joint bookrunners.

MTS Systems Corp. plans to kick off a $300 million offering of eight-year senior notes (expected ratings B3/B+) on Tuesday.

Initial guidance has the deal coming to yield in the 6¼% area, a trader said.

Wells Fargo Securities LLC is the left bookrunner.

And in a deal that could potentially play to junk bond investors in the United States and Europe, as well as to emerging markets investors, Aberdeen-based Ithaca Energy Ltd. disclosed plans to sell $700 million of five-year senior notes (B3).

Initial guidance has the deal coming to yield in the 10% area, according to a bond trader.

J.P. Morgan Securities LLC is leading the offer.

Friday inflows

The dedicated high-yield bond funds saw healthy inflows of cash on Friday, according to an investor.

High-yield ETFs saw $301 million of inflows on the day.

Actively managed high-yield funds saw $90 million of inflows on Friday, the investor said.

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