Morning Commentary: Junk slips as risk-free rates spike; Veritext, Rain Carbon on deck

By Paul A. Harris

Portland, Ore., Aug. 3 – The high-yield bond market traded ¼ point to ½ point lower on Thursday morning as Treasury yields continued to spike, according to a bond trader in New York.

The market felt heavy, the trader remarked.

Ten-year government paper was yielding 4.18%, 10 basis points higher on the morning, continuing the sharp climb which got underway late Tuesday after Fitch Ratings downgraded the long-term foreign currency rating of the United States of America to AA+ from AAA, the trader said.

With the S&P 500 stock index off 0.39% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.33%, or 24 cents, at $74.21.

A pair of junk bond issues that priced on Wednesday were trading slightly lower on Thursday morning, the trader said.

The CDK Global (Central Parent LLC/CDK Global II LLC/CDK Financing Co., Inc.) 8% first-lien secured notes due June 2029 (B2/B+) were wrapped around par in moderately active trading.

Those bonds were par ½ bid, par ¾ offered at Wednesday’s close.

The $755 million issue priced at par to yield 8.003%.

Less active were the TriNet Group, Inc. 7 1/8% senior notes due August 2031 (Ba2/BB), also wrapped around par.

Those bonds, which priced late Wednesday, did not begin trading in earnest until Thursday morning, according to the New York trader.

The $400 million issue priced at par.

Two deals are on deck in Thursday’s primary market.

Veritext plans to price a downsized $500 million offering (from $720 million) of VT TopCo, Inc. seven-year senior secured notes (B2/B/B+) talked to yield 8½% to 8¾%.

The deal is heard to be playing to $1.2 billion of demand, according to a sellside source.

And Rain Carbon Inc. is also on deck with a $450 million offering of second-lien senior secured notes due August 2029 (B3/B) talked to yield 12¼% to 12½% at par, in line with early guidance.

Following the announcement of investor-friendly covenant changes on Wednesday afternoon, Rain Carbon is heard to be playing to around $800 million of demand, and the deal could upsize, sources say.

Meanwhile, Greystar Real Estate Partners, LLC began a roadshow on Thursday for a $400 million offering of seven-year senior secured notes, in the market with initial guidance in the 8% area.

The deal is set to price on Monday.

Fund flows

High-yield ETFs sustained big daily cash outflows of $709 million on Wednesday, according to a market source.

Actively managed high-yield funds were positive on the day, posting $50 million of inflows on Wednesday, the source said.

As the market awaits a report on the weekly cash flows of the various asset classes, expected Thursday afternoon from fund-tracker Refinitiv Lipper, the combined high-yield bond funds are tracking $1.2 billion of net outflows for the week that concluded with Wednesday’s close, according to the market source.

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