Comstock drives by; Avis, Vista Outdoors on a par-handle; Simmons Foods outperforms

By Paul A. Harris and Abigail W. Adams

Portland, Ore., Feb. 18 – The quarterly earnings blackout slowed primary market activity with only Comstock Resources, Inc. in the high-yield market on Thursday.

Meanwhile, the secondary space was again largely unchanged on Thursday. “The secondary is just stagnant,” a source said.

New paper continued to control the tape albeit with different trajectories.

Avis Budget Car Rental, LLC’s 5 3/8% senior notes due 2029 (B3/B) were flat for most of Thursday’s session. However, the notes gained momentum heading into the close.

While coming in from the heights reached after breaking for trade, Vista Outdoor Inc.’s 4½% senior notes due 2029 (B3/B+) also continued to trade with a decent premium.

However, both Avis and Vista remained on a par handle in the aftermarket.

Meanwhile, Simmons Foods Inc.’s 4 5/8% senior secured second-lien notes due 2029 (B3/B) outperformed with the notes trading up to a 101-handle.

Comstock drive-by

An earnings blackout continued to impede new issue activity on Thursday, as potential issuers endeavor to meet financial reporting requirements in order to raise fresh cash in the high-yield market, sources say.

Comstock Resources came with Thursday's sole deal, an upsized $1 billion issue (from $750 million) of 6¾% eight-year senior notes (Caa1/B/B+) that priced at par, at the tight end of talk, in a drive-by.

The deal was well spoken for, according to an investor who said that the new Comstock 6¾% notes due in 2029 were up 1¼ points at the close, at 101¼ bid, 102¼ offered.

Allocations were small fractions of orders, the investor said.

A trader, seeing the same levels (and hearing similar laments on the allocations) said that Comstock's deal was heard to be playing to $4.4 billion of demand.

Rising Treasury yields

High demand and poor allocations for paper with Comstock's credit profile can be expected in a high-yield market doing business in a rising Treasury rate environment sources say.

Noting that the yield of the 10-year Treasury has undergone a huge upward move – about 40 basis points since the beginning of the year, and about 10 bps in the past week – sources say that a deal such as Comstock represents the best possibility of realizing a decent return in fixed income.

“In an environment where Treasury yields are increasing the signals say that the economy is doing well, which is supportive of high yield,” said an investor who spoke Thursday afternoon on background.

It is in the higher reaches of credit quality – high double-B and crossover bonds – where rising Treasuries will have negative impacts.

Indeed, in the high-credit quality portion of the junk bond market prices have started to pivot lower – in some cases substantially lower – as Treasury yields have soared, traders say.

The broad high-yield market has generated a 1.36% year-to-date return, the investor said.

However, the investment grade market's return for 2021 to date is negative-1.94% the source added.

Bore down more closely into the index and you find more evidence of the outsize rewards for risk takers.

Double-B bonds have returned 1.03% year to date.

Single-B bonds have returned 1.06% year to date.

However triple-C bonds have returned a whopping 3.75% thus far in 2021, the investor observed.

Duration risk is also pointing investors to high yield, the source added, noting that the duration to worst for triple-B paper is presently 7.9 years.

That risk falls all the way to 4.5 years for double-B bonds, the source said.

Avis gains momentum

Avis’ newly priced 5 3/8% senior notes due 2029 fell flat in the aftermarket. However, the notes gained strength heading into the market close.

The 5 3/8% notes were marked at par bid, par ¼ offered for most of Thursday’s session.

However, they gained momentum and were marked at par 3/8 bid, par 5/8 offered heading into the close.

The notes “stumbled a bit,” out of the gate with lots of flippers involved in the deal.

However, once the flippers were out of the way, the notes improved, the source said.

There was more than $99 million in reported volume during the session.

Avis priced a $600 million issue of the 5 3/8% notes in a Wednesday drive-by.

The yield printed at the tight end of yield talk in the 5½% area.

Par handle

Vista Outdoor’s 4½% senior notes due 2029 were trading off the heights reached after breaking for trade.

However, the notes continued to trade with a decent premium.

The 4½% notes were marked at par ¼ bid, par ¾ offered heading into Thursday’s close.

There was more than $45 million on the tape during the session.

The notes traded as high as par 7/8 after breaking for trade on Wednesday.

One of the sporting goods manufacturer’s business units is shooting sports with the company a maker of guns and ammunition, which has been controversial for some investors.

However, the company has a stable business and the notes were well received, a source said.

Vista Outdoor priced an upsized $500 million, from $350 million, issue of the 4½% notes on Wednesday.

The yield printed in the middle of yield talk in the 4½% area.

Simmons outperforms

Simmons’ 4 5/8% senior secured second-lien notes due 2029 were putting in a strong performance in the secondary space with the notes trading up to a 101-handle.

The 4 5/8% notes were marked at 101 bid, 101¼ offered heading into Thursday’s close.

They traded as high as 101 3/8 earlier in the session, a source said.

The notes were better bid on Thursday after closing the previous session at par ¾ bid, 101 offered.

The Siloam Springs, Ark.-based producer of poultry, pet and animal nutrition products is considered a safe haven for investors, a source said.

The food and agricultural sectors in general are more resilient to an economic downturn.

The notes also offered a decent yield for a single-B credit, the source said.

In a heavily oversubscribed offering, Simmons Foods priced an upsized $850 million, from $750 million, issue of the 4 5/8% notes at par on Wednesday.

Pricing came tighter than the 4¾% to 5% yield talk.

The deal was heard to have played to $4.8 billion of orders.

Substantial Wednesday outflows

The dedicated high-yield bond funds had a substantial $720 million of net outflows on Wednesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $600 million of outflows on the day.

Actively managed high-yield funds sustained $120 million of outflows on Wednesday, the source said.

Those negative Wednesday flows helped drive the weekly high-yield fund flows deeper in the red.

The combined funds sustained $1.347 billion of net outflows in the week to Wednesday's close, according to information posted on the Internet by the Refinitiv Lipper Fund Flow Report Newsline on Thursday.

Indexes mixed

Indexes were again mixed on Thursday as they have been for much of the week.

The KDP High Yield Daily index shaved off 1 basis point to close Thursday at 69.87.

The index gained 4 points on Wednesday and was up 1 point on Tuesday.

The ICE BofAML US High Yield index shaved off another 5.9 bps with the year-to-date return now 1.308%.

The index was down 4.3 bps on Wednesday after gaining 2.5 bps on Tuesday.

The CDX High Yield 30 index dropped 22 points to close Thursday at 109.11.

The index was down 5 bps on Wednesday and 8 bps on Tuesday.

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