Morning Commentary: Junk slips in line with equities; new Civitas bonds maintain premiums

By Paul A. Harris

Portland, Ore., June 23 – The high-yield bond market opened 1/8 of a point lower on Friday, in line with weaker share prices, with all of the major U.S. stock indexes trading in the red, sources said.

With the Dow Jones industrial average off 0.5% at midmorning the iShares iBoxx $ High Yield Corporate Bond (HYG) share price was down 0.14%, or 11 cents, at $74.21.

As the dust settled on a big Thursday session in the new issue market newly minted issues were turning in mixed performances in the secondary market, a high-yield portfolio manager said.

Unsecured notes priced in a $2.7 billion two-part deal from Civitas Resources, Inc. were maintaining premiums to their issue prices on Friday morning, sources said.

The Civitas 8 3/8% notes due July 2028 and the 8¾% notes due July 2031 (both B1/BB-/BB-) were both par ¾ bid on Friday morning.

Both priced at par in tranches sized at $1.35 billion apiece, in a deal that was heard to have played to $6 billion of demand across both tranches.

However, the twice-downsized issue of Windsor Holdings III, LLC senior secured notes due June 2030 (B2/B+/BB+) sat well below issue price on Friday morning: 98 7/8 bid, 99 3/8 offered, according to the portfolio manager.

The $800 million issue priced at par.

The deal, which came in support of the buyout of Univar Solutions Inc. by Apollo, was downsized from $1 billion after undergoing an earlier decrease from $1.8 billion, with proceeds shifted to concurrent bank loans.

Meanwhile, notes priced in a smaller deal from Brinker International, Inc., the 8¼% senior notes due July 2030 (B1/BB-), were wrapped around par on Friday morning, the investor said.

The $350 million issue came at par in what the portfolio manager characterized as an attractively priced deal.

Thursday’s $4.25 billion burst of issuance was the biggest since April 4, which saw $4.33 billion in three tranches including $3.84 billion of the Cloud Software Group, Inc. (Citrix Systems, Inc.) hung bridge.

In Friday’s primary market Tidewater Inc. launched its $250 million offering of five-year senior notes with a 10 3/8% coupon at 98.5 to 99.

The deal, which is being run by a syndicate of Nordic banks, is expected to price on Friday.

The week ahead, the final week of June, should be an active one in the new issue market, according to the portfolio manager who did not have any issuer names to volunteer.

Fund flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Thursday, according to a market source.

High-yield ETFs sustained $303 million of outflows on the day.

However actively managed high-yield funds enjoyed positive cash flows on the day, posting $222 million of inflows on Thursday, the source said.

News of Thursday’s daily fund flows trails a Thursday afternoon report that the combined high-yield funds had $265 million of net inflows during the week to the Wednesday, June 21 close, according to fund-tracker Refinitiv Lipper.

That’s the fourth positive cash flow for the junk funds in the past five weeks, and the smallest among them, according to the market source.

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