Morning Commentary: New Radians higher in active trading; oil names shrug off Gulf news

By Paul A. Harris

Portland, Ore., June 14 – A typical summer Friday was taking shape in the junk bond market at mid-morning, sources said.

Amid very little trading activity, with equities weaker on the morning, junk was unchanged to slightly higher, according to traders based in New York.

High-yield ETF share prices were flat at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG), at $86.36 per share, was up a penny, or 0.01%.

Bonds priced Thursday by Radian Group Inc. were trading Friday morning at a smart premium to the new issue price.

The new Radian Group 4 7/8% senior notes due March 2027 (Ba2/BB+) – a bullet – were trading 101 bid, 101¼ offered.

The upsized $450 million issue (from $350 million) came at par in a deal heard to have been at least three-times oversubscribed.

Elsewhere, trading activity in the new U.S. Renal Care, Inc./BCPE Cycle Merger Sub II, Inc. 10 5/8% senior notes due July 2027 was much more nebulous on Friday, traders said.

A small amount of the deal, 500 bonds, traded at par ¼, according to one trader, who added that price quotes seemed to be all over the place.

The $505 million issue priced at par after undergoing extensive covenant changes.

Judging by the notably limited amount of activity in the paper in Friday's secondary market, it is altogether conceivable that the dealer took down a substantial portion of the issue, sources said.

Proceeds from the deal will be used to fund the buyout of U.S. Renal Care by an investor group comprised of Chris Brengard and the U.S. Renal Care management team, Bain Capital Private Equity, Summit Partners, Revelstoke Capital Partners and Mark Caputo.

Turning away from recent issues, any scare that hostilities between Iran and the United States in the Persian Gulf might create a significant disruption in the global supply of crude oil did not appear to be translating into a bid for oil-related bonds on Friday morning, traders said.

With the U.S. Central Command asserting that Iran is behind Thursday’s attacks on two petrochemical tankers in the Persian Gulf, and Iran threatening to block or constrict shipping in the Strait of Hormuz, the choke point between the gulf and the Indian Ocean, junk bonds that tend to track the price of oil were actually somewhat softer on the morning, traders said.

The California Resources Corp. 8% senior secured second-lien notes due December 2022 were 69 bid, down ¼ point from Thursday night, according to a trader.

Those bonds traded as well as 69 5/8 bid on Thursday, the source said.

Multi-Color on deck

The new issue market awaited fresh word on the Multi-Color Corp. (LABL Escrow Issuer, LLC) $1.39 billion two-part deal backing the buyout of the company by Platinum Equity LLC and the merger of Multi-Color with W/S Packaging Holdings, Inc.

The deal includes $650 million of seven-year senior secured notes (B2/B) talked to yield in the 7% area, tight to initial guidance in the low 7% area.

The unsecured tranche features $740 million of eight-year senior notes (Caa2/B-) talked to yield 10% to 10¼%, well wide of initial guidance in the low 9% area.

Books are scheduled to close at noon ET on Friday.

Multi-Color is a tale of two tranches, sources say.

The secured piece is two-times oversubscribed and could possibly have come as tight as 6¾%, a trader said.

That didn't happen, with market watchers suspecting that the secured tranche might ultimately upsize because the unsecured tranche and the $1.2 billion equivalent term loan are heard to be facing some headwinds, the trader said.

The deal will possibly be moved into the week ahead, according to a market source.

Thursday inflows

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

High-yield ETFs saw $108 million of inflows on the day.

Actively managed high-yield funds saw $15 million of inflows on Thursday.

News of Thursday's daily flows follows a Thursday afternoon reporting that the combined funds saw $1.72 billion of new outflows in the week to Wednesday's close, according to Lipper US Fund Flows.

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