High-coupon junk paper in demand; Deluxe, Global Infrastructure rip; SRS tranches mixed

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 21 – The high-yield secondary space closed the day largely unchanged albeit with a firmer tone than earlier in the week. And, normally in the foreground, the primary market took a backseat on Friday and had a rare no-new-issue day.

Recently priced paper was in focus following the deluge of deals that cleared the primary market on Thursday.

The majority of deals were putting in strong performances in the secondary space with high-coupon bonds outperforming.

Deluxe Corp.’s 8% senior notes due 2029 (B3/B-) ripped on Friday with the notes trading 4 to 5 points above their issue price.

Global Infrastructure Solutions Inc.’s 5 5/8% senior notes due 2029 (B1/BB-) continued to gain following a strong break.

Delek Logistics Partners, LP’s 7 1/8% senior notes due 2028 (B3/BB-/BB-) continued to trade up to 3 points above the issue price.

SRS Distribution Inc.’s tranches were in focus with the unsecured tranche outperforming its lower-yielding secured counterpart.

Xenia Hotels & Resorts, Inc.’s 4 7/8% senior secured notes due 2029 (S&P: B) continued to trade with a 101-handle in high-volume activity.

While the majority of deals to price on Thursday were trading 1 or more points above their issue prices, Hilton Grand Vacations Inc.’s 5% senior notes due 2029 (B2/B-) remained on a par-handle.

Quiet Friday

The dollar-denominated junk bond primary market put up a goose egg on Friday.

Notwithstanding the dearth of activity during its final session, the May 17 week saw $13 billion of issuance, above the primary market's 2021 weekly average of $12.3 billion, according to Prospect News data.

The year's biggest week to date came early in 2021, as the week of Jan. 25 had $16.7 billion.

The lowest active week of the year, to date, saw a more or less respectable $7.3 billion.

There will be an active $2.85 billion new issue calendar when business resumes on Monday.

Look for nine to 10 deals in the final week of May, which figures to be front-loaded because Friday will be a half day for the bond market, ahead of the extended Memorial Day holiday weekend, a trader said.

For the yield

High-yield notes remained in demand on Friday with the high-coupon bonds that priced during Thursday’s session outperforming.

Deluxe’s 8% senior notes due 2029 ripped in the aftermarket with the notes trading as high as 105¼ during Friday’s session, according to a market source.

The notes were trading off their highs into the close. However, they continued to move in the 104 to 104½ context.

Deluxe priced a $500 million issue of the 8% notes at par on Thursday.

The yield printed at the wide end of the 7¾% to 8% yield talk.

Global Infrastructure Solutions’ 5 5/8% senior notes due 2029 continued to gain after a strong break.

The 5 5/8% notes were up about ¼ point to change hands in the 102 7/8 to 103¼ context heading into the market close.

Global Infrastructure priced a $400 million issue of the 5 5/8% notes at par on Thursday.

The yield printed at the tight end of yield talk in the 5¾% area.

Delek Logistics’ 7 1/8% senior notes due 2028 were also trading upwards of 3 points above their issue price.

The 7 1/8% notes were changing hands in the 102¾ to 103 context on Friday.

Delek Logistics priced a $400 million issue of the 7 1/8% notes at par on Thursday.

The yield printed on top of revised yield talk, which had tightened from earlier talk of 7¼% to 7½%.

A tale of two tranches

SRS Distribution’s tranches were in focus on Friday with the unsecured tranche outperforming the secured tranche – an indication of investor appetite for yield.

SRS’s 6 1/8% senior notes due 2029 rose to a 102-handle. The notes were changing hands in the 102 to 102¼ context heading into the market close, according to a market source.

There was more than $58 million in reported volume.

However, the 4 5/8% senior secured notes due 2028 were marked at par ¾ bid, 101 offered heading into the close.

There was more than $90 million on the tape.

SRS Distribution priced a $650 million tranche of the 4 5/8% notes and a $450 million tranche of the 6 1/8% notes at par on Thursday.

The 4 5/8% notes came at the tight end of the revised 4 5/8% to 4¾% yield talk, which tightened from earlier talk of 4¾% to 5%.

The 6 1/8% notes came at the tight end of the 6 1/8% to 6¼% yield talk, which tightened from earlier talk of 6¼% to 6½%.

Xenia holds

Xenia’s 4 7/8% senior notes due 2029 held on to the gains made after a strong break.

The 4 7/8% notes continued to trade on a 101-handle. They were changing hands in the 101½ to 101¾ context heading into the market close.

Xenia Hotels & Resorts priced an upsized $500 million, from $400 million, issue of the 4 7/8% notes at par on Thursday.

Pricing was tighter than the 5% to 5¼% yield talk.

Hilton on a par-handle

While the majority of deals to price during Thursday’s session were 2 to 4 points above their issue price, Hilton Grand Vacations’ 5% senior notes due 2029 remained on a par-handle.

However, the notes were trading with a premium to their issue price.

The 5% notes were changing hands in the 101½ to 101 5/8 context heading in to the market close.

The notes were active with more than $40 million in reported volume.

Hilton priced an upsized $850 million, from $675 million, issue of the 5% notes at par on Thursday.

The yield printed at the tight end of the 5% to 5¼% yield talk.

Asset managers continue to see outflows

Actively managed high-yield funds sustained $580 million of outflows on Thursday, the most recent session for which data was available at press time, according to a market source.

That represents the sixth consecutive substantial negative flow for the actively managed funds which sustained outflows totaling $3.4 billion over the past six sessions, the biggest outflows for that category of funds since March 2020, the market source said.

In the week to Wednesday's close the combined high-yield funds, ETFs plus actively managed funds, saw $1.7 billion of net outflows, even though during that period the ETFs saw $1.1 billion of inflows.

The actively managed funds drove net weekly flows into the red by sustaining $2.8 billion of outflows during that period, the market source said.

The high-yield ETFs saw daily cash inflows of $338 million on Thursday.

Indexes

Indexes closed Friday largely flat although they ended the week with cumulative losses.

The KDP High Yield Daily index rose 1 point to close Friday at 69.45 with the yield now 3.94%.

The index dropped 4 points on Thursday, 10 points on Wednesday, 1 point on Tuesday and 2 points on Monday.

The index was down 16 points on the week.

The CDX High Yield 30 index rose 3 bps to close Friday at 109.4.

The index gained 20 bps on Thursday after dropping 11 bps on Wednesday, 16 bps on Tuesday and 28 bps on Monday.

The index was down 32 bps on the week.

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