Morning Commentary: Junk weakens in line with equities; ETFs see big Thursday outflows

By Paul A. Harris

Portland, Ore., Aug. 18 – The high-yield bond market opened ¼ of a point lower on Friday, in line with equities, sources said.

The Tenneco Inc. 8% senior secured notes due November 2028 (B1/B), the hung bridge refinancing that commandeered a good deal of the market’s attention during the mid-August period, continued to slip in the secondary market on Friday morning, according to a high-yield portfolio manager.

The notes were 81 1/8 bid, 81 7/8 offered at the dealer, the investor said, adding that away from the dealer they were 81 bid.

A little later in the morning a bond trader had them at 81¼ bid, 82¼ offered.

Those bonds were 81 5/8 bid, 82 1/8 offered on Thursday.

The $1.9 billion issue, which was part of the financing for Apollo’s late 2022 acquisition of Tenneco, came at 85 on Tuesday.

The market’s most recent issue, the Maxim Crane Works Holdings Capital, LLC 11½% second priority senior secured notes due September 2028 (Caa1/B-), was trading well above issue price on Friday morning at 99¾ bid, par ¼ offered.

The $500 million deal, which was led by JPMorgan, priced at 98.158 to yield 12% on Thursday.

Word in the market has it that Maxim Crane is JPMorgan’s last deal before Labor Day.

The primary market was quiet on Friday morning.

The comparatively brisk $10 billion new issue pace set during the first half of August is expected to fall off dramatically during the week ahead, sources say.

One possible transaction could materialize in the form of a $1.7 billion notes offering backing the buyout of Syneos Health Inc. by Elliott Investment Management, Patient Square Capital and Veritas Capital.

Goldman Sachs was heard to be pre-marketing the Syneos bonds in the context of 9%.

A $2 billion Syneos term loan is also being pre-marketed with spread whisper of 425 basis points to 475 bps, a trader said.

Turning to market technicals, high-yield ETFs sustained $1.028 billion of daily cash outflows on Thursday, according to a bond trader.

It was their 10th largest outflow of the year, and was primarily driven by an $838 million daily outflow from exchange traded fund “JNK.”

The dedicated high-yield bond funds sustained $1.09 billion of net outflows on the week to the Wednesday, Aug. 16 close, the trader noted, adding that it was the fourth consecutive weekly outflow, leaving the year-to-date net cash flows of the junk funds at negative $13.159 billion.

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