Madison tranches mixed; Colgate at a premium; funds lose $2.23 billion; junk primary pauses

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 17 – The new issue bourse remained quiet on Thursday, in the wake of Wednesday's Federal Open Market Committee meeting in which central bankers alluded to likely rate hikes on the far horizon and slipping support for Fed bond-buying measures.

It's not likely that the Fed scared prospective issuers or investors away, market sources said on Thursday.

What is true is that issuers front-loaded the June 14 week, getting around $10 billion of deals done, or nearly done, ahead of the meeting, they added.

Meanwhile, the secondary space was slightly softer on Thursday as the market continued to digest both the Federal Reserve’s latest announcement and Thursday’s unemployment figures, which showed an uptick in claimants.

While low-coupon, longer-duration notes took the brunt of the market weakness as 10-year Treasury yields ticked higher, the overall market was little changed, sources said.

New paper continued to dominate the tape although with different trajectories.

Madison IAQ, LLC’s tranches were mixed with the higher-coupon unsecured notes outperforming their lower-coupon secured counterpart – a trend in recent dual-tranche secured/unsecured offerings.

Colgate Energy Partners III LLC’s 5 7/8% senior notes due 2029 (B3/B) were trading with a premium to their issue price although they remained on a par handle.

Apollo Commercial Real Estate Finance, Inc.’s 4 5/8% senior secured notes due 2029 (Ba2/B+) continued to struggle in the secondary space with the notes sinking further below par in active trading.

Meanwhile, funds continued to leave the space with high-yield mutual and exchange-traded funds seeing outflows of $2.23 billion.

A bond trader reported seeing a large volume of bids-wanted in-competition (BWICs) on Thursday, predominantly from the high-yield ETFs.

The source also mentioned spotting a large volume of BWICs on Wednesday.

Calendar

The dollar-denominated active calendar was ultrathin at Thursday's close.

One offering is thought to either be in or near the market.

Magpul Industries Corp. is heard to have undertaken the placement of $300 million of seven-year senior secured second-lien notes (B1), a Rule 144A and Regulation S deal via sole bookrunner B. Riley Securities.

Information on the deal, such as pricing indications and timing, has been hard to come by since the market got wind of it earlier in the week, sources said on Thursday.

Madison’s tranches

Madison’s recently priced tranches were mixed in secondary market activity with the unsecured notes trading with a solid premium while the secured notes remained wrapped around their issue price.

Madison’s 4 1/8% senior secured notes due 2028 (B1/B) fell flat in the aftermarket.

They were marked at 99¾ bid, par ¼ offered heading into Thursday’s close – a level the notes have been stuck at since breaking for trade on Wednesday.

However, Madison’s 5 7/8% notes due 2029 (Caa1/CCC+) were trading with a large premium despite their lower credit rating.

The 5 7/8% notes were changing hands in the par 7/8 to 101 1/8 context heading into Thursday’s close, a source said.

Higher-coupon unsecured notes that have priced as part of secured/unsecured, dual-tranche offerings have tended to outperform their lower-coupon, secured counterparts.

The trend is an indication that the risk bid remains intact with investors hungry for yield, a source said.

Madison priced an upsized $700 million, from $600 million, tranche of the 4 1/8% notes and an upsized $1.035 billion, from $885 million, tranche of the 5 7/8% notes at par on Wednesday.

The 4 1/8% notes printed at the tight end of yield talk in the 4¼% area.

The 5 7/8% notes printed at the tight end of yield talk in the 6% area.

Colgate at a premium

Colgate Energy’s 5 7/8% notes due 2029 were trading with a decent premium in the aftermarket.

However, the notes remained on a par-handle.

The 5 7/8% notes were changing hands in the par ½ to par 7/8 context throughout Thursday’s session.

The notes were active with more than $62 million in reported volume.

Colgate priced an upsized $500 million, from $400 million, issue of the 5 7/8% notes at par on Wednesday.

The yield printed at the tight end of yield talk in the 6% area.

The deal was heard to have been at least 2x oversubscribed.

Apollo sinks further

Apollo’s 4 5/8% senior secured notes due 2029 continued to struggle in the aftermarket.

The notes were down another ½ point to trade in the 99 to 99¼ context heading into the market close, a source said.

There was more than $23 million of the bonds on the tape.

The 4 5/8% notes have struggled since they broke for trade with the notes quickly dropping below par.

Apollo priced an upsized $500 million, from $400 million, issue of the 4 5/8% notes at par on Tuesday.

Indexes down

Indexes continued to leak on Thursday.

The KDP High Yield Daily index dropped 7 points to close Thursday at 70 with the yield 3.78%.

The index shaved off 1 point on Wednesday, 3 points on Tuesday and 5 points on Monday.

The ICE BofAML US High Yield index was down 8.9 bps on Thursday with the year-to-date return now 3.046%.

The index shaved off 3.6 bps on Wednesday, 2.2 bps on Tuesday and 3.9 bps on Monday.

The CDX High Yield 30 index dropped 3 points to close Thursday at 109.89. The index dropped 21 bps on Wednesday, 3 bps on Tuesday and 9 bps on Monday.

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