Morning Commentary: Junk opens weaker behind lower oil prices; Alliance Automotive on tap

By Paul A. Harris

Portland, Ore., Feb. 2 – High-yield bonds were down ¼ point to ½ point early Tuesday, according to a trader based on the East Coast of the United States.

Declining crude oil prices were pressuring junk, sources said.

The barrel price of West Texas Intermediate crude for March 16 delivery was down $1.50, or 4.74%, at $30.12 heading into the New York mid-morning.

High-yield ETFs were sellers, putting out bids-wanted-in-competition lists, traders said.

“They’re selling but not reaching,” a trader remarked, adding that the ETFs were perhaps ¼ point off Monday’s mark.

The ETF share prices were substantially lower heading into mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 36 cents, or 0.46%, at $78.07 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $32.61 per share, was down 21 cents, or 0.64%.

Bonds of Ally Financial Inc. were outperforming the market on the back of news that its per-share earnings beat analysts’ expectations. The Ally Financial 8% senior notes due 2031 were at 112 bid, 113 offered, down ¼ point on the day.

There remains concern in the market that Ally has a significant amount of subprime exposure, the trader remarked.

Alliance Automotive on deck

In the primary market Alliance Automotive Finance plc talked a proposed €50 million add-on to its 6¼% senior secured notes due Dec. 1, 2021 (existing ratings B1/B+) at 101.75 to 102.25.

Timing was accelerated. Books were scheduled to close at 11 a.m. ET on Tuesday, and the deal is set to price thereafter. Previously the offer was expected to be in the market overnight.

Credit Suisse is the lead left bookrunner. Royal Bank of Scotland and UBS are joint bookrunners (see related story in this issue).

Elsewhere Kinetic Concepts Inc. is marketing a $400 million offering of five-year first-lien senior secured notes (expected ratings Ba3/BB-) in a deal that could price Tuesday, a trader said.

Guidance is in the 8% area, the trader added.

Outflows

The cash flows of the dedicated high-yield bond funds were negative on Monday, a trader said.

High-yield ETFs saw $52 million of outflows on the day.

Asset managers sustained $40 million of outflows on Monday.

Dedicated bank loan funds, meanwhile, saw $155 million of outflows on the day.

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