Morning Commentary: Junk firms; new Neogen senior notes rally as high as 102 bid

By Paul A. Harris

Portland, Ore., July 7 – As equities improved in the early going on Thursday the high-yield bond market firmed by about ½ point, according to a bond trader on the East Coast of the United States.

With the S&P 500 stock index up 0.9% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.91%, or 67 cents, at $74.30.

Bonds priced Wednesday by Neogen Corp. continued to hold in at a notable premium to their issue price.

The Garden SpinCo Corp. (Neogen) 8 5/8% senior notes due July 2030 (B2/BB) were as high as 102 bid, said the trader.

The $350 million issue priced at par, riding into market on $400 million of reverse inquiry and playing to an order book that was 2.5-times oversubscribed, sources said.

The dollar-denominated new issue market remained quiet on Thursday morning, and there were no dollar deals on the active forward calendar.

However, the market continues to watch for a new offering of notes supporting the buyout of Tenneco Inc. by affiliates of Apollo Global Management, Inc., the trader said.

On Thursday Tenneco announced that Brian J. Kesseler, its chief executive officer, intends to vacate that position upon completion of the merger, with his role to be assumed by Jim Voss.

Also on Thursday, the company announced that closing conditions, with respect to antitrust and/or foreign direct investment laws, have been satisfied or waived, and the merger is expected to go forward.

Meanwhile Tenneco recently undertook a change-of-control tender offer for $800 million of its 5 1/8% senior secured notes due 2029 and $500 million 7 7/8% senior notes due 2029, via merger entity Pegasus Merger Co., an affiliate of Apollo.

The early tender date is July 12.

“They're dotting the I's and crossing the T's in a manner that suggests they're headed to market with a deal,” said the trader, who added that it might come as soon as a window of opportunity in the capital markets presents itself.

Remarkably, in the face of Thursday’s news, Tenneco's outstanding bonds remained largely inactive, the trader said, adding that mergers and acquisitions news away from Tenneco – most notably a possible merger between Gulfport Energy Corp. and Encino Energy LLC – has largely failed to kindle much bond trading activity.

Away from the dollar-denominated market there was one deal active in Europe.

An expected £600 million-equivalent two-part euro-denominated secured bond deal (B/B1/BB+) backing the acquisition of British bookmaker William Hill International’s non-U.S. assets from Caesars Entertainment Inc. by 888 Holdings Ltd. was expected to price on Thursday.

It includes benchmark tranches of five-year fixed-rate notes talked to yield 11¼% to 11½% and floating-rate notes talked at a 550 basis points spread to Euribor, with no Euribor floor, at a discount of 85 to 86.

That price talk backed up substantially from the early whisper that had the floating-rate notes coming at a spread of 525 bps to 550 bps in the low 90s, and the fixed-rate notes coming with a 6% to 7% coupon at a discount.

Heading into the close of markets in western Europe there was no fresh news on the 888 deal, a source said.

Wednesday outflows

The dedicated high-yield bond funds sustained $310 million of net daily outflows on Wednesday, according to a market source.

High-yield ETFs saw $189 million outflows on the day.

Actively managed high-yield funds sustained $121 million of outflows on Wednesday.

Ahead of an expected Thursday afternoon report on the weekly fund flows of the various asset classes from fund-tracker Refinitiv Lipper, the market anticipates news of the first weekly inflows to the dedicated junk funds in four weeks, according to the market source.

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