Morning Commentary: Junk resets, post-Fed, Crude prices buoy new Colgate Energy paper

By Paul A. Harris

Portland, Ore., June 17 – Messages from Wednesday’s Federal Open Market Committee meeting – likely rate hikes on the far horizon and slipping support for Fed bond-buying measures – sparked some selling in the high-yield bond market, traders said on Thursday.

Depending upon where they were focused, traders were seeing prices lower by 1/8 point to as much as ¾ of a point.

A trader who focuses squarely on the speculative-grade region of the credit curve was marking paper 1/8 to ¼ lower.

However, another trader, this one focused more on low investment-grade and crossover names, had some bonds down as much as ¾ of a point.

One sector bucking the trend on Thursday morning was energy.

The barrel price of West Texas Intermediate crude oil, while lower on the morning, had staged a phenomenal rally into mid-June, rising above $72, after trading below $62 in mid-May.

Hence energy bonds were weathering the FOMC impact comparatively better.

The new Colgate Energy Partners III LLC 5 7/8% notes due July 2029 (B3/B) were hanging in above issue price at par 5/8 bid, par 7/8 offered on Thursday, a trader said.

The upsized $500 million issue (from $400 million) priced Wednesday at par in a deal that the Texas E&P brought in order to raise cash for its acquisition of Permian Basin acreage from Occidental Petroleum.

Away from energy, news that low triple-B rated ArcelorMittal SA will use cash to fund tender offers to buy notes from three of its dollar-denominated series and four euro-denominated series generated some demand among higher rated steel names, a trader said.

And in a commodities space that is getting pulverized on news that China is releasing state metal reserves for the first time in a decade and a half, in a move designed to curb runaway speculation, the ArcelorMittal tender news was causing a glimmer of light to shine on some iron ore names, the trader added.

Away from energy and commodities, among other recent issues, the new OneMain Finance Corp. 3½% senior social bonds due January 2027 were straddling issue price on Thursday at 99 7/8 bid, par 1/8 offered, unchanged.

The deal, which saw a big upsize to $750 million from $500 million, priced Tuesday at par but never really got going in the secondary market, the trader said.

The high-yield new issue bourse was quiet on Thursday as issuers front-loaded the June 14 week ahead of the Fed, pricing nearly $10 billion of junk, Monday through Wednesday.

Speculative grade borrowers did not want to wait around to see what impact Wednesday’s FOMC meeting would have on the new issue executions, a trader remarked.

The active calendar contains one dollar-denominated deal.

Magpul Industries Corp. seeks to place $300 million of seven-year senior secured second-lien notes (B1) in a debt refinancing and dividend funding deal that is in the market via bookrunner B. Riley Securities Inc.

The deal could come before the end of the week, a trader said, but added that guidance and timing information has been sparse.

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