Morning Commentary: Market improvement lifts junk; Abengoa bonds jump on capitalization news

By Paul A. Harris

Portland, Ore., Aug. 26 – Cash bonds were ¼ to ½ point higher on Tuesday heading into the midday on the East Coast of the United States, according to a trader in New York.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was 40 cents better at $85.33 per share.

The SPDR Barclays High Yield Bond ETF (JNK) was up 22 cents on the day at $36.62 per share.

The bonds of Spain-based renewable energy company Abengoa SA traded sharply higher on news that the company will undergo recapitalization by virtue of a rights issue being arranged by a trio of European banks.

Abengoa’s dollar-denominated 8 7/8% notes due 2017 were trading in a context of 68 to 69 on Wednesday, the trader said.

The bonds recently traded as low as the 53 to 54 context, a plunge that has been attributed to some miscommunication with shareholders, the trader recounted, adding that Abengoa stock, which is traded on the Madrid exchange, is up 65% in the past two days.

Abengoa’s euro-denominated 8 7/8% notes due 2017 were also higher on the news. The New York trader marked them in the context of 60 bid.

Europe also tightens

The European high-yield market also had a bit of a tailwind on Wednesday, according to a London-based investment banker.

The iTraxx Crossover index was 5 basis points tighter on the day, at 340 bps bid, heading into the late London afternoon, the banker said.

It got as wide as 380 bps bid on Monday, closing that session at 365 bps bid, the banker said.

To put those spreads in context with the correction that high yield has been undergoing, the index was 287 bps bid at the end of May.

That 53 bps difference between Wednesday afternoon's level and the late May spread satisfactorily quantified the correction that has been taking place in high-yield bonds, the banker remarked.

In terms of cash bonds, higher credit quality paper has understandably proven more durable than lower quality bonds.

The SoftBank Group Corp. 4% senior bullet notes due 2022 (Ba1/BB+) were 101½ bid on Wednesday, still trading at a premium to the par reoffer price but well off from highs of 104½ bid seen shortly after the paper came in a €500 million tranche on July 22.

All told, the Tokyo-based telecommunications company brought €2.25 billion and $2 billion of non-callable paper in that July transaction.

Meanwhile the Douglas AG (Kirk Beauty Zero GmbH) 6¼% senior secured notes 2022 (B1/B) were also holding in well above new issue at 102¾ bid on Wednesday. The German beauty and personal products company sold those notes at par on June 26, and they traded as high as 104½ bid, the banker said.

However the Balta Group’s 7¾% senior secured notes due 2022 (B2/B) were below new issue price on Wednesday, at 98 bid, the banker said. The €290 deal priced at par on July 23.

There was no news in the primary markets of either Europe or the United States on Wednesday, sources said.

Absent the present volatility there might have been some European new issue business in the week ahead, the London-based banker said.

However it now seems likely that it will be withheld until at least the week of Sept. 7, the source added.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.