Monday 19 March 2018 by Leigh Winton Week in review

From the trading desk

RBA minutes expected to show unchanged rate expectations this year, Frontier sell off sees funds reinvested into high yield USD names, including Bristow, Sprint and Dean Foods; small supply available in QMS Media, and new issues from JC Penney and Pioneer Credit made available to FIIG clients. Last chance to reinvest McPherson’s monies with popular switches into PMP, CFAP and Merredin

What’s trading

AUD

  • The ASX listed Pioneer Credit Union recently issued a floating rate note which FIIG made available to clients. The bond - Pioneer BBSW+5.25% March 2022 – is unrated and offers a forecast yield well over 7.00%pa. The issue was only AUD40m, so do not expect to see much more supply
  • QMS Media, who provides outdoor advertising services issued a bond in November last year. We were able to source some supply in this bond that offers an indicative yield of 6%pa, maturing in November 2022. Currently, we have a small parcel available for investors.
  • McPherson’s Limited have recently called early its remaining fixed and floating rate bonds due end of March at $103 and $101.50. Clients have been able to exit their positions prior to call date with many choosing to do so as supply in similar bonds become available. Popular switches have been into the following names:
    • PMP 6.43% 2019 at an indicative YTW of 5.75%pa
    • CFAP 8.35% 2020 at an indicative YTW of 7.45%pa
    • Merredin 7.50% 2022 at an indicative YTW of 6.45%pa

Non AUD

  • Clothing retailer JC Penny returned to the debt market last week to raise US$400m via a new fixed rate 2nd lien bond issue. The new security pays a 8.625% fixed, semi-annual coupon and matures in 2025. FIIG has added the issue to the DirectBonds list, making it available to wholesale clients looking to invest in the high yield USD space. Clients can expect to enter a position in the JCP 2025 at an indicative yield of 8.53%pa
  • Trading among the short dated senior debt issued by US telecom provider Frontier Communications was active early in the week, as some clients elected to sell into a strong institutional bid following the recent tender announcement. Clients sought to reinvest Frontier proceeds elsewhere, which prompted a spike in demand for many of our other high yield USD investment options. The most popular names included fellow telecommunications provider Sprint Corp, industrial aviation services provider Bristow Group and food and beverage company Dean Foods. Each are still available in good supply at the below indicative yield to worst:
    • Bristow 8.75% 2023 – 7.50%pa
    • Dean Foods 6.50% 2023-USD – 6.90%pa
    • Sprint 7.625% 2025-USD – 7.15pa

Economic wrap

While US data has been strong, CPI was somewhat muted with the core number at 0.2%, and retail sales figures were moderate. However, industrial production beat forecasts and consumer sentiment was the highest in over 10 years, printing above 100.00.

The Reserve Bank Australia Board meeting minutes are likely to confirm an unchanged rates outlook for Australia in 2018.  Ten year US treasuries closed at 2.845% on Friday night versus the ten year Australian government bond at 2.71%.

Other news – AUD high yield available

Pioneer Credit issued a AUD40m medium term note last week. The non rated bond was oversubscribed and pays coupons of BBSW+525 bps.

JC Penney issued a new USD400m bond which pays coupons of 8.625% semi-annually. Positively, the company was recently upgraded by S&P to B+ (from B), and our offshore credit provider views them constructively. One risk is the recovery rate, which is likely to be low in the event of default given the retail industry is undergoing significant change. View the Factsheet

Bristow and Sprint continue to attract new inflows, some driven by reinvestment from Frontier. The results of the Frontier tender should be known later this week. Here are Factsheets for Bristow and Sprint.

Monday 19 March was the last chance to trade and reinvest McPherson’s monies but speak to your relationship manager as we can offer longer settlement terms. There is still supply in many of FIIG originated bonds to accommodate these flows.


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