Morning Commentary: Fear of central bankers drags junk lower; Amara Nzero prices notes

By Paul A. Harris

Portland, Ore., July 6 – Economic data indicating the ongoing health of the U.S. economy, with a job market that remains vigorous, sent Fed-wary investors scurrying for cover on Thursday, sources said.

With the Dow Jones industrial average off 1.5% at mid-morning, the broad high-yield bond market was ½ point lower, according to a bond trader in New York.

Private sector jobs surged by 497,000 in June, according to payroll processing group ADP, whereas analysts had expected a much more modest 220,000 increase.

As the yield of the 10-year Treasury note surged above 4% on Thursday morning an expectation took hold among investors that the Federal Reserve Bank’s Federal Open Market Committee will resume the inflation-fighting interest rate increases which it paused in June.

Selling was underway in the speculative-grade corporate bond market, particularly in longer-maturity and lower-coupon issues, the trader said.

The Viking Cruises Ltd. 9 1/8% senior notes due July 2031 (Caa1/B-) were par ¼ bid, par ½ offered, down ½ point to as much as 5/8 of a point in a couple of round-lot trades, the source said.

The $720 million priced at par on June 26.

However, this trader specified that secondaries were still better bid than offered in the early going on Thursday.

The dollar-denominated primary market was quiet on the morning, and is apt to be skunked in the holiday abbreviated post-Independence Day week, sources say.

However, as rate apprehension grips the dollar-denominated junk bond market, risk appetite in the euro-denominated high-yield space seems robust, sources say.

The freshly minted Cirsa Finance International Sarl 7 7/8% senior secured notes due 2028 were par ½ bid, 101 offered on Thursday morning, according to a market source in London.

The €375 million issue priced at par late Wednesday, part of an upsized €700 million dual-tranche deal (from €650 million) that also included a €325 million tranche Euribor plus 450 basis points floating-rate notes that priced at 98.

The euro-denominated market continued to churn out headlines on Thursday.

Madrid-based business-to-business technology company Amara Nzero priced a €270 million issue of Green Bidco five-year senior secured green notes (B/B+) at par to yield 10¼%, in the middle of talk.

And with the close of books imminent, New Jersey-based Avis Budget Finance plc talked its €400 million offering of seven-year senior notes (B1/BB-) to yield in the 7¼% area, toward the wide end of early guidance.

Perhaps the most vivid illustration of the euro-denominated junk market’s resilient risk appetite comes in the form of the Profine (HT Troplast GmbH) €380 million offering of five-year senior secured notes (B2/B), now in the market with initial talk in the mid-to-high 9% area.

A portion of the Profine proceeds (€20 million) is earmarked to fund a shareholder dividend.

It comes a week after Italy-based specialty chemical producer Polynt Group priced a €300 million issue of SCIL IV LLC/SCIL USA Holdings LLC 9½% secured notes (B1/BB-), with all proceeds going to fund a dividend.

Dividend deals, representing one of the high-yield bond market’s most aggressive uses of proceeds, are typically perceived as hot-market deals, sources say.

Fund flows

High-yield ETFs sustained a very hefty $819 million of daily cash outflows on Wednesday, according to a market source.

Actively managed high-yield funds were flat to slightly positive on the day, posting $6 million of inflows on Wednesday, the source said.

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