Morning Commentary: Junk ¼ point better; Navistar slips on Volkswagen’s deal deadline

By Paul A. Harris

Portland, Ore., Oct. 16 – With stock indexes trading in the green, junk opened ¼ point better on Friday, a trader said.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was up a dime, or 0.12%, at $84.83 per share at mid-morning.

Bonds of Navistar International Corp. slipped on news that Volkswagen AG’s Traton SE heavy-truck division set a Friday deadline for Navistar to accept Traton's $3.6 billion takeover bid, which is set to be withdrawn unless Navistar expresses a willingness to proceed.

The Navistar 9½% senior secured notes due May 2025 were down 1/8 point to ¼ point at 111¼ bid, 112¼ offered on the deadline news, a trader said.

Investors sizing up the Navistar paper are taking note that it contains a provision making the first call premium, 107.125, applicable after one year, May 1, 2021, if Traton acquires Navistar.

Among recent issues, Rolls-Royce plc's dollar-denominated 5¾% senior bullet notes due October 2027 (Ba3/BB-/BB+) were 102 bid, 102½ offered on Friday morning.

The deal came at par in a $1 billion tranche on Wednesday, playing to $4.5 billion of orders.

It was part of an overall £1.99 billion equivalent three-part deal that also included €750 million of 4 5/8% notes due February 2026 and £545 million of 5¾% notes due October 2027.

Ligado on deck

Ligado Networks LLC is on deck with a megadeal that is being closely watched by the market.

The satellite communications company, formerly known as LightSquared, is expected to price $3.85 billion of secured PIK notes in two bullet tranches.

The revised deal features $2.85 billion of three-year non-callable first-lien PIK notes (Caa1) being marketed with a 15½% all-PIK coupon at par. The deal was announced earlier with guidance of 13%, envisioning a coupon that would be 9% PIK and 4% cash, at OID 96.

The revised deal also includes $1 billion of 3.5-year non-callable second-lien PIK notes being marketed with a 17½% all-PIK coupon at OID 75. The second-lien deal was earlier announced with a tenor of four years and initial guidance that would have set the coupon 300 basis points behind the first-lien notes, at OID 96.

Because of the deal's size, the deep discount of the second-lien notes, and apprehensions that existing first-lien creditors may attempt to roll into the new paper, hoping to sell it into a rally (a “pump-and-dump”), terms on the Ligado deal are anticipated to appear late in the day, which could help to constrict trading ahead of the weekend, a trader said on Friday morning.

Thursday inflows

The dedicated high-yield bond funds saw $72 million of net daily inflows on Thursday, according to a market source.

Actively managed high-yield funds saw $105 million of inflows on the day.

However high-yield ETFs were negative, sustaining $33 million of outflows on Thursday, the source said.

News of Thursday’s daily fund flows follows a Thursday report that the combined funds saw $2.204 billion of net inflows on the week to the Wednesday, Oct. 14 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

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