Morning Commentary: High-yield market opens firm; Transocean, Care Capital on deck

By Paul A. Harris

Portland, Ore., July 7 – The high-yield bond market was firm at the open on Thursday on the back of strength in equities and higher oil prices, an investor said.

The barrel price of West Texas Intermediate crude oil for August delivery was up 1.08%, or 51 cents, at $47.94.

Bonds priced in mid-June by Weatherford International Ltd. – lately battered by volatility in energy prices – were up with oil prices.

The Weatherford 7¾% senior notes due June 15, 2021 were 97½ bid at mid-morning. The paper was 97 bid on Wednesday morning.

The Weatherford 8¼% notes due June 15, 2023 were 96½ bid, after having traded as low as 93 bid, the investor said. Those bonds were 94½ bid on Wednesday morning.

The Weatherford deal (B2/BB-) came in a pair of $750 million bullet tranches, which priced at par on June 10.

High-yield ETFs were up on the day. The iShares Trust - iShares iBoxx $ High Yield Corporate Bond ETF (HYG) was up 0.17%, or 14 cents, at $84.50 per share. The SPDR Series Trust - SPDR Barclays High Yield Bond ETF (JNK), at $35.60 per share, was up 0.18%, or 7 cents.

The primary

In the primary market, becalmed earlier in the week by post-Brexit volatility, two deals are on deck for Thursday, although just one is a straight-out high-yield offer.

Transocean Inc. (RIG) talked its $1.5 billion offering of seven-year senior notes (B1/BB-) with a 9% coupon at an original issue discount of 98 to 99.

Books close at 1 p.m. ET, with pricing to come thereafter.

The RIG order book is now said to be at deal-size, a source said, but added that accounts – among which hedge funds make up a significant proportion – want a yield in the mid-to-high 9% range.

Morgan Stanley and Goldman Sachs are leading the debt refinancing.

Meanwhile Care Capital Properties, LP talked its $500 million offering of non-callable 10-year senior notes (expected Baa3/expected BBB-/confirmed BBB-) to yield in the 5¼% area.

Official talk comes on top of initial guidance.

Books close at 1 p.m. ET on Thursday, with the debt refinancing deal to price thereafter.

In an attempt to reach a broad investor base, the deal – which is expected to garner investment-grade credit ratings from all three ratings agencies – is being run as a joint effort on the high-yield and high-grade syndicate desks.

Wells Fargo, Barclays, BofA Merrill Lynch and JPMorgan are the joint bookrunners.

Wednesday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Wednesday, the investor said.

High-yield ETFs saw $136 million of inflows on Wednesday, the fourth consecutive day of strong positive flows for ETFs, the source remarked.

Asset managers saw $80 million of inflows on Wednesday.

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