Morning Commentary: Market advances on easy Fed; Allied Universal brings $1.55 billion

By Paul A. Harris

Portland, Ore., June 20 – With the Federal Reserve Bank’s Federal Open Market Committee signaling earlier in the week that an easier Fed Funds rate is in the offing, a move that has the vocal support of the president of the United States, who hinted that Fed chairman Jerome Powell's job might be riding on such a move, it was full speed ahead in the capital markets on Thursday, sources said.

Fueled by an easy Fed, and by a big surge of cash into the high-yield ETFs, the junk market was definitely higher on Thursday morning, according to a trader in New York.

With the Dow Jones industrial average up 196 points at mid-morning, share prices of the high-yield ETFs were higher.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.46%, or 40 cents, at $87.57 per share.

Among recent issues, the new Avis Budget Group, Inc. 5¾% senior notes due July 2027 (B1/B) were par 7/8 bid on Thursday morning, after going out on Wednesday wrapped around par, the trader said.

The $400 million issue priced at par in a quick-to-market Wednesday trade heard to be playing to $1 billion of demand.

Nexstar Broadcasting, Inc.'s new 5 5/8% senior notes due July 2027 (B3/B) were 102¼ bid on Thursday morning.

The $1.12 billion issue priced at par on Wednesday, in the middle of yield talk in the 5 5/8% area. That talk had tightened from the 5 7/8% area.

And although they were last week's major bone of contention in the new issue market, the Multi-Color Corp. unsecured bonds were trading at a premium to new issue on Thursday.

The LABL Escrow Issuer LLC (Multi-Color) 10½% senior unsecured notes due July 2027 (Caa2/B-) were par ½ bid, 101 offered on Thursday morning.

They came at par on Tuesday in a downsized $690 million tranche (from $740 million) after covenant concessions and a succession of increases in price talk.

The LABL Escrow Issuer secured paper, the 6¾% senior secured notes due July 2026 (B2/B), were trading even better on Thursday, at 101½ bid, 102 offered, the trader said.

The upsized $700 million tranche (from $650 million) also priced at par.

However, the secured paper had been oversubscribed since early in Multi-Color’s full roadshow, sources said.

Allied Universal on tap

In the new issue market Allied Universal Holdco LLC commenced marketing $1.55 billion of high-yield notes on a roadshow set to run through Wednesday.

The deal features $500 million of seven-year senior secured notes (B3/B-/BB-) and $1.05 billion of eight-year senior unsecured notes (Caa2/CCC/CCC+).

Credit Suisse is the left lead bookrunner for the debt refinancing deal.

Meanwhile two of the deals positioned on the active forward calendar are expected to clear the market ahead of the coming weekend, sources say.

Michaels Stores, Inc. was scheduled to wrap up a roadshow for its $500 million offering of eight-year senior notes (B1/B) on Wednesday.

Initial guidance is in the low 7% area. However, the deal is heard to be facing headwinds, a trader said.

And Alpha Auto Group is expected to price a $225 million offering of five-year notes ahead of the weekend. Initial talk is 8% to 8¼%.

Big ETF inflows

High-yield ETFs saw $872 million of daily cash inflows on Wednesday, a market source said.

A big number, it was translating into a flurry of offers-wanted-in-competition (OWIC) lists from the ETFs that were attempting to deploy the cash, scrambling traders said on Thursday morning.

Meanwhile actively managed high-yield funds saw a much more modest $55 million of inflows on Wednesday, the market source said.

Due to the manner in which Lipper US Fund Flows tracks and reports the flows, the bulk of Wednesday's inflow into the ETFs won't appear in the weekly report on fund flow expected later on Thursday but will rather factor into the following week’s fund flows report (i.e., the week ending June 26).

With that said, the combined funds were tracking $325 million of net inflows in the week to Wednesday’s close, as the market awaited the Thursday report from Lipper.

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