Morning Commentary: Spirit AeroSystems notes shed altitude on gaff impacting Boeing

By Paul A. Harris

Portland, Ore., April 14 – Bonds of Spirit AeroSystems fell on Friday following news that the Wichita, Kan.-based airframe supplier disclosed that it was responsible for incorrectly installed parts that prompted Boeing Co. to pause deliveries of some 737 MAX jet airplanes, according to a bond trader in New York.

The Spirit AeroSystems Inc. 9 3/8% senior secured first-lien notes due November 2029 were down 2 points, changing hands at 106 3/8, the source said.

The company's unsecured paper fell further, the trader said, spotting the Spirit AeroSystems, Inc. (Spirit AeroSystems Holdings, Inc.) 4.6% senior notes due June 2028 changing hands at 81, down 5-plus points on the morning.

On Thursday Boeing said it was notified by a supplier of a nonstandard manufacturing process used to install some fittings on the 737 jet, the trader recounted.

Spirit AeroSystems’ shares (NYSE: SPR) were down 20% on Friday morning.

Elsewhere, the bonds of contract drug manufacturer Catalent Inc. fell on news that the New Jersey-based company issued a profit warning for its third fiscal quarter upon encountering higher-than-expected production costs at three of its facilities, according to the bond trader.

The Catalent Pharma Solutions, Inc. 3½% senior notes due April 2030 changed hands Friday morning at 86, down 2 points, the source said.

Among recent issues, the Baytex Energy Corp. 8½% senior notes due April 2030 (B1/BB-/BB-) were par 1/8 bid, par 3/8 offered, according to the trader.

The upsized $800 million deal (from $750 million) priced at 98.709 to yield 8¾% on Thursday and immediately popped to par on the break, the source recounted, noting that the Baytex order book was four-times oversubscribed, with much complaining about allocations among the accounts.

However, by Friday morning activity in the new Baytex paper dwindled amid a moderate torpor that had taken hold in the junk bond market heading into the weekend, the trader remarked.

The Thursday session also produced terms on a new bond issued by another Canadian energy name, British Columbia-based coal producer Conuma Resources Ltd.

The freshly minted Conuma Resources 13 1/8% senior secured notes due May 2028 (Caa1/CCC+) were nowhere to be seen on Friday morning, according to a trader, who focuses on distressed names.

There was a 96¾ bid out there for the paper, which priced at 97 to yield 13.974% in a $250 million issue that was announced to the broad market on Thursday afternoon and was priced shortly thereafter, leaving some players speculating that it may have been a “bought deal.”

Goldman Sachs was left books on the Conuma issue.

Elsewhere among names that are of interest to distressed players, the Cloud Software Group Holdings Inc. 9% senior second-lien notes due September 2029 (Caa2/B-) changed hands on Friday at 84 5/8, up 1/8 of point.

Activity in that massive $3,837,622,000 issue, which priced at 79 on April 4, seems somewhat played out, the distressed trader remarked.

The deal, which cleared some of the Citrix LBO bridge loan debt that had been hung up on dealer balance sheets since late 2022, generated a huge buzz among junk bond investors, particularly those who troll distressed waters, the trader said.

Now, with the price having risen 5-plus points from that OID – a little less enticing – investors have begun to zero in on the fundamentals of the Citrix LBO, and trading activity has diminished, somewhat, the source said.

The broad high-yield market was unchanged to slightly lower at mid-morning on Friday, sources said.

With the Dow Jones industrial average off 0.4%, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) share price was absolutely flat at $75.43.

The new issue market remained quiet heading into the weekend but is expected to see a meaningful reactivation during the week ahead, sources say.

Fund flows

High-yield ETFs saw a whopping $2.16 billion of daily cash inflows on Thursday, according to a market source.

Those inflows were evenly split, with the SPDR Bloomberg High Yield Bond ETF (JNK) seeing $960 million and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) seeing $955 million of inflows on the day, the source said.

Meanwhile the actively managed high-yield funds sustained moderate outflows of $60 million on Thursday.

News of Thursday’s daily flows follows a Thursday afternoon report that the combined funds saw $235 million of net inflows in the week to the Wednesday, April 12 close, according to fund-tracker Refinitiv Lipper.

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