Morning Commentary: Staples trades higher on exchange news; upsized Baldwin on deck

By Paul A. Harris

Portland, Ore., May 10 – The high-yield bond market opened 1/8 of a point better on Friday morning, traders said.

With the S&P 500 stock index up 0.24% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.05%, or 4 cents, at $76.98.

The bonds of Staples, Inc. were “super active” on the back of news that the company, which is in the portfolio of Sycamore Partners, is bringing an exchange deal for $949,564,000 of its 10¾% senior notes due 2027, and new first-lien financing, according to a bond trader in New York.

The Staples 10¾% senior notes due April 2027 traded Friday morning at 92½, up as much as 2 points, the source said.

That seemed a somewhat tepid response, suggesting that investors continue to weigh the news, the trader said.

Staples is expected to launch the new first-lien refinancing deal into the leverage markets in the week ahead, with the bank loan heard to be coming on Monday and bonds to follow, the trader said, noting that JPMorgan will have the lead.

The first-lien financing had been telegraphed to the market in mid-April, which sparked a rally in the 10¾% notes into the mid-90s, the trader recounted.

When that financing failed to materialize, those 10¾% notes drifted back into the high-80s, the source said.

The Friday rally in the 10¾% notes, triggered by Thursday’s news of the exchange and the new first-lien deal, suggests that investors understand that all-in-all it’s good news for unsecured bondholders, but they are now weighing whether to get into the exchange, taking its proffered new 12¾% junior lien secured notes due 2030 and cash, or wait and roll into the new first-lien paper, which will come with iron-clad documents and a hefty double-digit yield (possibly as high as 14%), the trader said.

Away from that news, and among recent issues, the new Cloud Software Group, Inc. 8¼% senior secured notes due June 30, 2032 (B2/B) were slightly better in reasonably active trading at 101 bid, 101 1/8 offered on Friday morning, having closed Thursday at par 7/8 bid, 101 1/8 offered.

The massively upsized $1.8 billion issue (from $1 billion) priced at par to on Wednesday.

Across the Atlantic there was two-way trading in new bonds issued Thursday by Fedrigoni SpA, a market source said.

The Fiber Bidco SpA (Fedrigoni) 6 1/8% senior secured notes due 2031 (B2/B) were 99 7/8 bid, par 1/8 offered. The €430 million priced at par.

The Fiber Bidco 10% cash/10¾% PIK senior holdco pay-if-you-can toggle notes due 2029 (CCC+) were par 3/8 bid, par ¾ offered. The €300 million issue also priced at par on Thursday.

In the primary market, Baldwin Insurance Group Holdings, LLC launched an upsized $600 million offering of seven-year senior secured notes (B2/B-) at 7 1/8%.

The deal, upsized from $500 million and set to price on Friday, launched tight to price talk in the 7¼% area and is heard to be playing to demand in excess of $2 billion, sources say.

Fund flows

The dedicated high-yield bond funds saw $443 million of net daily cash inflows on Thursday, according to a market source.

High-yield ETFs saw $408 million of inflows on the day.

Actively managed high-yield funds saw $35 million of inflows on Thursday, the source said.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds saw $2.351 billion of net inflows on the week to the Wednesday, May 8 close, according to market sources, who were referring to information reported by fund-tracker Refinitiv Lipper.

That’s the largest weekly inflow since November, according to the market source.

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