Four issuers sell low-grade bonds; W.R Grace outperforms; Royal Caribbean, Tallgrass flat

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 12 – Four issuers raised a combined total of $2.4 billion with one tranche each of dollar-denominated junk on Thursday.

AdaptHealth LLC and Carvana Co. were among the issuers to tap the market.

Meanwhile, the secondary space was at times heavy on Thursday as the market digested the latest producer price index data, which saw the largest increase in more than a decade.

While Thursday’s consumer price index report may have supported the Federal Reserve’s narrative that inflation was transitory, the producer price index data indicated otherwise.

Treasuries sold off as a result. However, the high-yield market “went quiet,” a source said.

While at times heavy, liquidity remained an issue with little selling activity and the market closed the day largely unchanged.

Royal Caribbean Cruises Ltd.’s 5½% senior notes due 2026 (B2/B) and Tallgrass Energy Partners LP/Tallgrass Energy Finance Corp.’s 6% senior notes due 2031 (B1/BB-/BB-) were also heavy at times although they closed the day largely flat.

CommScope, Inc.’s 4¾% senior notes due 2029 (Ba3/B) were trading with a slight premium although they remained on a par-handle.

However, W.R. Grace Holdings LLC’s 5 5/8% senior notes due 2029 (B3/CCC+/B+) continued to outperform with the notes holding on to the large premium reached after breaking for trade.

Meanwhile, the trend of outflows reversed course with high-yield mutual and exchange-traded funds adding $510 million in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flow Report Newsline.

Thursday’s primary

Four issuers raised a combined total of $2.4 billion with four tranches of dollar-denominated junk, on Thursday.

AdaptHealth, coming at the conclusion of a brief roadshow, was heard to have gone quite well, sources said.

The company priced an upsized $600 million issue (from $550 million) of 8.5-year senior notes (B1/B) at par to yield 5 1/8%, at the tight end of talk, and traded to par 5/8 bid, 101 offered by Thursday's close.

In a drive-by, Carvana priced a $750 million issue of 4 7/8% eight-year senior notes (existing ratings Caa2/CCC+) at par, in the middle of talk. The deal was heard to be two-times oversubscribed.

Flat

Royal Caribbean’s 5½% senior notes due 2026 and Tallgrass Energy’s 6% senior notes due 2031 were at times heavy on Thursday. However, both issues closed the day flat.

Royal Caribbean’s 5½% notes were marked at 99¾ bid, par offered in intraday activity, a source said. However, the notes improved as the session progressed and closed the day wrapped around par.

The deal is Royal Caribbean’s third pass at the market in 2021.

While the pricing of the notes was reasonable, the euphoria surrounding the reopening trade has diminished in recent months, a source said.

The Delta variant is calling into question whether cruise lines will be able to resume normal operations.

Royal Caribbean priced a $1 billion issue of the 5½% notes at par on Wednesday.

The yield printed in the middle of yield talk in the 5½% area.

Tallgrass Energy’s 6% senior notes due 2031 were also heavy in intraday activity and were marked at 99½ bid, par offered.

However, the notes improved as the session progressed and closed the day flat.

Tallgrass Energy priced a $500 million issue of the 6% notes at par on Wednesday.

The yield printed at the wide end of the 5¾% to 6% yield talk.

At a premium

CommScope’s 4¾% senior notes due 2029 were trading at a premium to their issue price on Thursday, although the notes remained on a par handle.

The 4¾% notes were marked at par ¼ bid, par ¾ offered, a source said.

CommScope priced a $1.25 billion issue of the 4¾% notes at par on Wednesday.

The yield printed at the wide end of the 4½% to 4¾% yield talk.

Outperformer

W.R. Grace’s 5 5/8% senior notes due 2029 outperformed in the secondary space with the notes maintaining the large premium reached after breaking for trade.

The 5 5/8% notes were marked at 101¾ bid, 102 offered on Thursday – roughly the same level reached after breaking for trade.

The industrial company priced an upsized $1.16 billion, from $955 million, issue of the 5 5/8% notes at par on Wednesday.

The yield printed at the tight end of the 5 5/8% to 5 7/8% yield talk.

Index

The KDP High Yield Daily index was down 4 basis points to close Thursday at 69.82 with the yield now 3.81%.

The index fell 12 bps on Wednesday, 0.05 bp on Tuesday and 4 bps on Monday.

The ICE BofAML US High Yield index gained 3.6 bps with the year-to-date return now 3.678%.

The index was down 11.9 bps on Wednesday, 3.1 bps on Tuesday and 9.2 bps on Monday.

The CDX High Yield 30 index was up 21 bps to close Thursday at 109.42.

The index gained 17 bps on Wednesday after falling 21 bps on Tuesday and 19 bps on Monday.

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