Morning Commentary: Junk opens lower; Chesapeake bond due in March fades from Monday highs

By Paul A. Harris

Portland, Ore., Feb. 9 – Cash bonds were ¼ point to ½ point weaker heading into the Tuesday mid-morning, according to a trader on the East Coast of the United States.

High-yield ETFs were flat to lower, the trader said, but added that there was a nibble from the ETFs in the form of a couple of offers wanted in competition lists (OWICs).

The iShares iBoxx $ High Yield Corporate Bd (HYG) was 28 cents, or 0.37%, lower at mid-morning, at $76.22 per share. SPDR Barclays High Yield Bond ETF (JNK), at $31.80 per share, was down 11 cents, or 0.34%.

Monday’s sole new issue was trading slightly above issue price.

The Manitowoc Co., Inc. (Manitowoc Cranes) 12¾% senior secured second-lien notes (B1/B+) due Aug. 15, 2021 was 95½ bid, 96¼ offered, according to the trader.

The restructured $260 million deal priced at 95.321 to yield 14%.

Chesapeake rises, falls back

The badly beaten-up bonds of Chesapeake Energy Corp. enjoyed a modicum of bounce on Monday after the company issued a press release stating that its relationship with restructuring law firm Kirkland & Ellis LLP dated back to 2010.

Earlier there had been a buzz in the market that the Kirkland & Ellis relationship signaled a possible bankruptcy filing, and it caused Chesapeake’s bonds to fall 18 to 20 points, the trader said.

The subsequent press release, which stated “Chesapeake currently has no plans to pursue bankruptcy,” caused the bonds to bounce, the source recounted.

Trailing the release Chesapeake paper was only 8 to 10 points lower on the day, versus 18 to 20 points earlier.

However that bounce appeared to be fading on Tuesday, the trader said.

The Chesapeake Energy 3¼% senior notes set to mature on March 15, 2016, just over a month hence, were 80¾ bid, 82¾ offered early Tuesday, said the trader.

That compared to a level of 85 bid shortly after the press release on Monday.

With the bond set to mature in a little over a month, these levels represent a certain amount of fear, on the part of investors, that payment may not be forthcoming, the trader said.

Thin calendar

There was no fresh news on the new issue front on Tuesday morning.

There are a pair of sizable dual-currency offers currently in the market.

Solera, LLC and Solera Finance, Inc. plan to start an international roadshow on Wednesday in London for a $2.03 billion equivalent offering of eight-year senior notes coming in tranches of euro-denominated and dollar-denominated notes, with tranche sizes to be determined.

The proposed dollar-denominated notes are coming with “10-handle” guidance, the trader said.

The full roadshow will continue in the United States during the week of Feb. 15, and the deal is set to price during the week of Feb. 22.

Meanwhile vehicle leasing company LeasePlan Corp. NV began a cross-border roadshow last week in Europe for its €1.55 billion three-part offering of senior secured notes (B1/BB+).

It is coming in tranches of euro-denominated and dollar-denominated five-year notes, and euro-denominated seven-year notes, with tranche sizes to be determined.

Early guidance on the dollar-denominated five-year notes was 7¼% to 7½%, said the trader who added that this guidance may have been overtaken by events, as ongoing market volatility continues to erode the appetite for risk.

The LeasePlan roadshow, now in the United States, wraps up on Thursday.

Outflows

The cash flows of the dedicated high-yield bond funds were negative on Monday, the trader said.

High-yield ETFs sustained $359 million of outflows on the day.

Actively managed funds saw $25 million of outflows on Monday.

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