Morning Commentary: New Citgo bonds rocket into secondary; Global Aircraft Leasing eyed

By Paul A. Harris

Portland, Ore., July 25 – High-yield bonds were slightly lower on Thursday morning, according to a trader based in New York.

High-yield ETF share prices were lower. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.15%, or 13 cents, at $86.97 per share.

However, the CDX HY 32 index of high-yield credit default swaps was better on Thursday at 107.895 basis points bid, 107.985 bps offered, up 0.319 bps, a hedge fund manager said.

However, junk’s present liquidity is remarkable, and investors are clamoring to put cash to work in the asset class, the source noted.

Bonds priced Wednesday in a megadeal from Citgo Holding, Inc. charged into the secondary market, the trader said.

The Citgo 9¼% senior secured notes due Aug. 1, 2024 (Caa1/B/B+) were 103 5/8 bid, 103¾ offered on Thursday morning.

The $1.37 billion issue priced at par, through the price talk.

Away from new issues, the bonds of Tesla, Inc. were down half a point on Thursday morning, the trader said, marking the Tesla 5.3% senior notes due August 2025 at 87½ bid, 87 5/8 offered.

On Wednesday the electric carmaker reported a $408 million second-quarter loss.

That news followed close on the heels of an announcement that chief technology officer J.B. Straubel, who has been with Tesla since early in its history, will depart the company.

Supply eyed

As the new issue market moves into the umbra of a seasonal earnings blackout, in which some potential issuers need to post new earnings numbers before making a pass at the capital markets, primary market activity was muted on Thursday morning.

However, a modest active forward calendar took aboard one conspicuous offering Thursday morning.

Global Aircraft Leasing Co., Ltd., a holding company which has a 70% ownership stake in Dublin-based aircraft leasing firm Avolon, began marketing a $1.5 billion offering of five-year cash contingent PIK toggle notes (expected Ba2).

Initial guidance has the deal coming with a yield in the mid 6% area and is being shopped by means of Thursday and Friday investor conference calls.

Morgan Stanley is the bookrunner.

Global Aircraft Leasing is expected to clear the market ahead of the approaching weekend, as are Advisor Group Inc., with $400 million of eight-year notes (Caa1/B-) guided in the 10% area, and Nesco Holdings I, Inc./Capital Investment Corp. IV, with $475 million of five-year second-lien notes guided in the 9% area.

Wednesday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Wednesday, according to a market source.

High-yield ETFs saw $182 million of inflows on the day.

Actively managed high-yield funds saw $5 million of inflows on Wednesday, the source said.

As the market awaits an anticipated Thursday afternoon report on weekly fund flows from Lipper US Fund Flows, the combined high yield funds are tracking $102.8 billion of inflows for the week to Wednesday's close, the source noted.

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