Junk posts $2.6 billion of issuance; Neiman Marcus on deck; secondary under pressure

By Paul A. Harris and Abigail W. Adams

Portland, Ore., March 18 – Three issuers priced dollar-denominated speculative-grade tranches on Thursday for $2.6 billion, in spite of a shifting tone in the capital markets.

Meanwhile, it was a brutal day in the secondary space with the cash bond market down ¼ to ½ point as the 10-year Treasury yield shot past 1.73% on renewed concerns about inflation.

The energy sector was also under pressure as WTI crude oil futures sank 7.12% to settle at $60 a barrel on a greater-than-anticipated supply buildup and renewed concerns about demand.

While risk-assets were for sale on Thursday with longer duration and low-coupon junk bonds particularly heavy hit, several recent deals were performing well in the secondary space.

While coming in from their highs after a strong break, Triton Water Holdings Inc.’s 6¼% senior notes due 2029 (Caa1/CCC+) maintained a strong premium in active trading.

Nesco Holdings II, Inc.’s 5½% second-lien notes due 2029 (B3/B) were also putting in a strong performance with the notes more than 1 point above their issue price.

While Trinseo Materials Operating SCA’s 5 1/8% senior notes due 2029 (B2/B) were on a par handle, the notes were trading at a premium to their issue price.

However, T-Mobile US Inc.’s three tranches of senior notes (Ba3/BB) dropped below par in active trading.

Meanwhile, high-yield mutual and exchange traded funds continued to have outflows with $410 million leaving the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flow report.

Jittery day, but okay

Amid intensifying capital markets jitters – set in train as the yield of 10-year Treasuries crossed the 1¾% mark in intraday trading, a 14-month high, before falling back to close at 1.71% – the junk new issue market put up another $2.6 billion on Thursday from three tranches.

As commodity prices were plummeting, Australian iron ore producer Fortescue Metals Group Ltd. doubled the size of its 10-year unsecured bullet deal (Ba1/BB+) to $1.5 billion from $750 million, and priced the notes at par to yield 4 3/8%, at the tight end of talk.

The deal was priced to move, according to a trader who added that it was heard to be playing to $2.1 billion of demand when price talk came out.

The market perceived Fortescue's 4 3/8% coupon as cheap for Ba1/BB+ paper, the trader said, noting that on Tuesday T-Mobile US Inc. priced $1.35 billion of 10-year paper (Ba3/BB) at par to yield 3½%, 87.5 basis points inside of the higher-rated Fortescue notes.

Commodity prices appeared subject to global economic uncertainty on Thursday, sources said, noting that the barrel price of West Texas Intermediate crude oil fell, as commodities including coffee, corn and copper also tumbled.

Elsewhere in Thursday's primary market action Terex Corp. priced a $600 million issue of 5% eight-year senior notes (B2/BB-) at par, at the wide end talk, in a deal heard to be two-times oversubscribed

And Paris-based geoscience services provider CGG SA priced $500 million of 8¾% six-year senior secured notes (B3/CCC+/B) at par.

Meanwhile Neiman Marcus Group Inc. unveiled plans to sell $1 billion of five-year senior secured first-lien notes (Caa2/existing CCC+) on Friday.

The deal is heard to be in the gunsights of the hedge funds, sources say.

There was already $2 billion in the book by early Thursday afternoon, a trader said, adding that dealers had been of a mind to accelerate timing and price the deal Thursday, but checked those plans because of the volatility.

Pending official talk, the Neiman Marcus deal – proceeds to refinance bankruptcy-related debt – is whispered in the mid-to-high 7% area.

Also on deck for Friday is Verra Mobility Corp. with $350 million of eight-year senior notes (Caa1/B-) talked in the 5½% area, in line with initial guidance (see related stories in this issue).

Triton Water comes in

While Triton Water’s 6¼% senior notes due 2029 were coming in from the heights reached after breaking for trade, they maintained a strong premium in high-volume activity.

The notes traded in a range of 101¾ to 102 3/8 during Thursday’s session and stood poised to close the day at 102, a source said.

There was more than $64 million in reported volume during the session.

The notes were down about 5/8 point from Wednesday’s close.

They ripped after breaking for trade and were marked at 102½ bid, 103 offered late Wednesday afternoon.

Triton Water priced an upsized $770 million, from $670 million, issue of the 6¼% notes at par on Wednesday.

The yield printed at the tight end of the 6¼% to 6½% yield talk.

Nesco in focus

Nesco’s 5½% second-lien notes due 2029 were also trading at a large premium to their issue price despite a weak day for the secondary space.

The 5½% notes traded as high as 102¼ during Thursday’s session. They were changing hands in the 101 7/8 to 102 context heading into the market close.

The notes were active with more than $113 million in reported volume.

Nesco priced a $920 million issue of the 5½% notes on Wednesday.

The yield printed tighter than the 5¾% to 6% yield talk.

Trinseo on a par handle

While the notes did not reach the same heights as the other issues to price during Wednesday’s session, Trinseo Materials’ 5 1/8% senior notes due 2029 maintained a slight premium to their issue price in active trading.

The 5 1/8% notes traded in a par 3/8 to par 5/8 context during Thursday’s session, a source said.

There was about $20 million in reported volume.

Trinseo priced a $450 million issue of the 5 1/8% notes at par on Wednesday.

The yield printed in the middle of yield talk in the 5 1/8% area.

T-Mobile below par

T-Mobile’s three tranches of senior notes fell below par in high-volume activity on Thursday.

The 2 5/8% senior notes due 2026 continued to outperform the longer duration tranches.

The notes spent the majority of Thursday’s session below par; though, they were wrapped around their issue price heading into the close, a source said.

However, T-Mobile’s 3 3/8% senior notes due 2029 and the 3½% senior notes due 2031 were both on 99-handles heading into the close with both tranches trading as low as 99¼, a source said.

The 2029 and 2031 notes were wrapped around par on Wednesday while the 2026 notes were trading with a slight premium.

Indexes in the red

Indexes were in the red on Thursday.

The KDP High Yield Daily index dropped 17 points to close Thursday at 68.9 with the yield now 4.31%.

The index was down 10 points on Wednesday at 69.07, 3 points on Tuesday and 3 points on Monday.

The ICE BofAML US High Yield index nearly wiped out all of its gains for the year.

The index dropped 23.7 bps with the year-to-date return now 0.005%.

The index was down 23.8 bps on Wednesday, 0.3 bps on Tuesday and 0.7 bps on Monday.

The CDX High Yield 30 index dropped 60 bps to close Thursday at 108.3.

The index gained 26 bps on Wednesday, dropped 14 bps on Tuesday and gained 3 bps on Monday.

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