Morning Commentary: Vistra, Grubhub notes trade to premiums; Stericycle offering on deck

By Paul A. Harris

Portland, Ore., June 7 – The markets sloughed off Friday's weaker-than-expected jobs numbers because that weakness may prompt the Fed to lower rates in hopes of nursing along a U.S. economy fighting the ill effects of ongoing trade skirmishes, a New York-based junk bond trader said.

Junk opened stronger on Friday, in line with equities.

High-yield ETFs were trading higher. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 25 cents, or 0.29%, at $86.13 per share.

Both the non-farm payrolls and average hourly earnings numbers in the U.S. Labor Department's Friday report were disappointments, the trader said.

Some investors appear to be betting that the Federal Reserve Bank’s Federal Open Market Committee will lower its benchmark Federal Funds rate when the committee meets on June 18 and June 19 in Washington, D.C., the trader explained.

Among recent issues, the Grubhub Inc. 5½% senior notes due 2027 (Ba3/BB) were up a 1½ points at 101¼ bid, 101¾ offered.

The upsized $500 million issue (from $400 million) priced on Thursday at par.

With the deal playing to $3 billion of orders, pricing tightened notably from the 6% to 6¼% initial price talk, sources said.

Meanwhile, the new Vistra Energy Corp. 5% senior notes due July 2027 (Ba3/BB/BB) were a point higher on Friday at 101 bid, 101¼ offered.

The upsized $1.3 billion issue (from $1 billion) priced at par on Thursday.

Light new issue activity

Only one new deal was set to clear the market ahead of the weekend.

Stericycle, Inc. is expected to price a $550 million split-rated offering of five-year senior notes (BBB-/BB+) early Friday afternoon, New York time.

The deal, which is being transacted on the high-yield desk, is talked at 5¼% to 5½%, slightly wide to initial guidance in the low 5% area.

Looking to the week ahead, a $1.39 billion two-part secured notes offering backing the merger of Multi-Color with W/S Packaging Holdings, Inc., a Platinum Equity deal, has engendered some investor pushback, the bond trader said.

On the table are $650 million of seven-year notes (expected ratings B2/B) with initial guidance in the low 7% area and $740 million of eight-year notes (expected ratings Caa2/B-) with initial guidance in the low 9% area.

However, investors find the documents to be wanting, in terms of lender protection, and want substantial revisions or much more juice, according to the trader.

Negotiations are heard to be underway with a single anchor order eyeing 10% of the deal, the trader said.

Thursday fund flows

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

High-yield ETFs saw $50 million of inflows on the day.

However, actively managed funds sustained $25 million of outflows on Thursday, the source said.

News of Thursday’s daily flows follows a Thursday afternoon report that the combined high-yield funds sustained $3.22 billion of net outflows in the week to the Wednesday, June 5 close, according to Lipper US Fund Flows.

That is the biggest weekly outflow since the week that ended Dec. 26, 2018, the market source said.

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