Morning Commentary: Donnelley notes on deck; lead-exposure names see modest recoveries

By Paul A. Harris

Portland, Ore., July 18 – High-yield TMT names dinged in the wake of a story on lead contamination related to telecommunication utilities, which appeared last week in the Wall Street Journal, inched higher on Tuesday, according to a bond trader in New York.

For example, the Frontier Communications Holdings, LLC 8¾% first-lien secured notes due 2030 were up a little over a point on the morning, changing hands at 94, the trader said.

The Windstream Communications (Windstream Escrow LLC/Windstream Escrow Finance/WINMQ Equity Corp.) 7¾% first-lien senior secured notes due 2028, which traded on Tuesday morning at 81¾, were up ¾ of a point.

Telecom bonds slid when the Wall Street Journal reported that the industry may have been aware for decades that its lead-covered cables posed health hazards, the trader recounted.

That story left investors pondering how soon hordes of state and federal environmental regulators, and potentially legions of plaintiffs will surface to demand retribution.

However, a view may be taking hold in the junk bond market that the sell-off sparked by news stories has been overdone, and that regulators, in any event, are unlikely to attempt to snuff out the telecommunications industry, the trader said.

Away from that situation the broad junk bond market advanced ¼ point on Tuesday morning, according to the trader.

Bonds priced in Monday drive-bys – conspicuous for being just the second and third issues to print in July – traded at premiums on Tuesday morning, the source noted.

The Beacon Roofing Supply 6½% senior secured notes due August 2030 (Ba3/BB) traded Tuesday at par 1/8.

The upsized $600 million issue (from $500 million) priced at par.

Conceding that the price improvement was modest, the trader remarked that the deal “came on the tights,” right on top of where the company’s existing unsecured paper and been trading – i.e., no market concession – leaving little room for the new issue to move higher.

The Crescent Energy Co./Crescent Energy Finance LLC add-on to the 9¼% senior notes due Feb. 15, 2028 (B1/BB/BB-) was up ¼ point-plus, trading at 98¾ on Tuesday morning.

The upsized $300 million tap (from $250 million) priced at 98 to yield 9.799%.

Following a burst of new issue news on Monday the primary market remained relatively quiet on Tuesday morning.

R.R. Donnelley & Sons Co. talked its $250 million offering of five-year junior-lien secured notes (B3/B-) with a 9¾% coupon at an issue price of approximately 95.25 to yield 11%, on top of initial guidance, with pricing to follow later on Tuesday.

Following a quiet first half of July in the new issue market the active forward calendar came alive on Monday.

And there is also a shadow calendar of near-at-hand deals, some of which are already being pre-marketed, sources say.

Fund flows

High-yield ETFs saw $235 million of daily cash inflows on Monday, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $32 million of outflows on Monday.

The combined funds are tracking $1.63 billion of net inflows for the week that will conclude with Wednesday’s close, according to the market source.

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