Morning Commentary: Junk down a point, energy down 2 points as rout continues; Sprint bonds lower

By Paul A. Harris

Portland, Ore., Jan. 20 – As the global capital markets roiled, junk bond prices continued to tumble on Wednesday, according to a trader on the East Coast of the United States.

“It’s pretty nasty,” said the trader, adding that energy names were down 2 points on the day while the rest of the market was off a point or so.

The recently minted Chesapeake Energy Corp. 8% senior secured second-lien notes due Dec. 15, 2022 were 41 bid, 42 offered, the trader said.

The 8% second-lien paper, $2.35 billion of which came late last year in a $3.8 billion exchange deal, was quoted at 49.25 on Dec. 23, the day it settled.

It is one of the more liquid issues in the energy space, so there are more data points, according to the source.

“Almost 100% of the energy sector is getting crushed,” the trader said.

Away from energy, bonds of Sprint Corp. were trading lower as have the company’s share prices.

The Sprint Nextel 6% notes due Dec. 1, 2016 – set to mature in just over 11 months – were 97 offered, yielding 9¾% on Wednesday.

Asked if this implied Sprint might go out of business before the end of 2016, the trader was cautiously incredulous.

“All I can tell you is this bond is available at 97,” the source remarked.

Longer maturity Sprint bonds were down 5 points this week, the source added.

High-yield ETFs were also trading sharply lower heading into the Wednesday mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down $1.04, or 1.34%, at $76.60 per share. SPDR Barclays High Yield Bond ETF (JNK), at $32.14 per share, was down 43 cents, or 1.32%.

Primary quiet

Only one high-yield transaction is on the active calendar.

GCP Applied Technologies Inc., which is to be spun off from W.R. Grace & Co., has been marketing a $525 million offering of seven-year senior notes (B1/B+) on a full roadshow.

The deal, via left bookrunner Goldman Sachs & Co., was presented in Boston on Tuesday.

Guidance on the deal began around 8½%, a source said, but added that with the sell-off in high-yield bonds that has ensued since the deal was announced on Jan. 12, pricing is bound to have moved higher, with price discovery afoot.

The company is set to finish up the roadshow by presenting to investors on the West Coast of the United States on Wednesdayand Thursday.

The Columbia, Md.-based provider of specialty construction chemicals, building materials and packaging technologies plans to use the proceeds to fund a $500 million distribution to W.R. Grace & Co.-Conn., a direct subsidiary of W.R. Grace, and for general corporate purposes.

Outflows

The cash flows of the dedicated high-yield funds continued to be negative on Tuesday, the trader said.

High-yield ETFs saw $182 million of outflows on the day.

Asset managers sustained a whopping $850 million of daily outflows on Tuesday

Dedicated bank loan funds, meanwhile, saw $335 million of outflows on the day.

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