Primary prices $3.2 billion; forward calendar grows; Caesars, PGT on a 101-handle

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 13 – The domestic high-yield primary market saw a strong start to what is expected to be a busy week with three issuers pricing a cumulative $3.2 billion in four tranches.

Gap, Inc.’s $1.5 billion two tranche offering of senior notes was one of Monday’s drive-by deals (Ba3/BB).

The calendar also grew with Coinbase Global, Inc.’s debut junk-bond offering among the deals announced.

Meanwhile, the secondary space continued to hold near all-time tights although volume outside of new and recent deals remained light.

While there has been chatter about a potential correction on the way, “there are no sellers of anything,” a source said.

Many remain in wait-and-see mode with the market focused on the latest Consumer Price index data set to be released tomorrow, which has the potential to be a market-moving event.

With few sellers in the market and outstanding issues trading at high prices, new deals continued to be the main source of trading activity in the secondary space.

Caesars Entertainment Inc.’s 4 5/8% senior notes due 2029 (Caa1/CCC+) and PGT Innovations, Inc.’s 4 3/8% senior notes due 2029 (B2/B+) jumped in aftermarket activity with both issues trading on a 101-handle.

Monday’s primary

Monday's session in the high-yield new-issue market saw a strong start to what is expected to be a busy week.

By mid-morning dealers announced $5.63 billion of new business.

Of that amount $3.2 billion, in four tranches from three issuers, cleared the market by Monday night, as drive-bys.

Those included Gap, which priced $1.5 billion of senior notes (Ba3/BB) in two tranches: $750 million of 3 5/8% eight-year notes and $750 million of 3 7/8% 10-year notes, both at par and both tight to talk.

Timing was accelerated. When announced, the deal was scheduled to remain in the market until Tuesday.

The heaviest demand was for the eight-year paper, which was playing to $2 billion of orders around midday Monday, a trader said, adding that at the same time there was around $1.5 billion of orders for the 10-year notes.

Among Monday's announcements, cryptocurrency trader Coinbase Global disclosed plans to price $1.5 billion of senior guaranteed notes (Ba1/BB+) in two tranches on Tuesday.

The deal includes seven-year notes with initial guidance in the high 3% area and 10-year notes with initial guidance in the low 4% area (see related stories in this issue).

High-yield investors got a whiff of cryptocurrency in early June when MicroStrategy Inc. priced a $500 million issue of 6 1/8% senior secured notes due June 2028 (B1/B-) at par, saying it would use the proceeds to acquire additional Bitcoin.

If there is any fear of cryptocurrency in the junk-bond market it can't be inferred from the way those MicroStrategy 6 1/8% notes have traded since the interim.

They traded as high as 103, and were 102 bid, 102½ offered late last Friday, a high-yield bond trader said.

Holding pattern

The secondary space remained in a holding pattern near record tight credit spreads on Monday.

While equities were choppy the previous week, there has been little impact on the high-yield space.

“The market’s holding like a champ,” a source said. “Nothing seems to really shake anyone’s confidence.”

Market players will be eyeing the Consumer Price index set to be released on Tuesday.

The data is expected to come in high and may indicate a potential shift in the Federal Reserve’s accommodative monetary policy.

It may be a potential market-moving event, a source said.

However, until the Federal Reserve makes an official statement, some sources do not see a dramatic change in current market conditions.

Caesars trades up

Caesars’ 4 5/8% senior notes due 2029 were putting in a strong performance in the secondary space with the notes trading on a 101-handle, despite their low credit rating and tight pricing.

The 4 5/8% notes were marked at 101 bid, 101½ offered at the market close, according to a market source.

The deal was heavily oversubscribed with orders of about $6 billion.

Sources attributed the demand to the dearth of new paper in the latter part of August and the continued popularity of the reopening trade.

Caesars priced an upsized $1.2 billion, from $1 billion, issue of the 4 5/8% notes at par on Friday.

The yield printed tighter than the 4¾% to 5% yield talk.

PGT on a 101-handle

PGT’s 4 3/8% senior notes due 2029 were also putting in a strong performance in the secondary space with the notes also on a 101-handle.

The 4 3/8% notes were marked at 101 bid, 101½ offered at the close, a source said.

The window and door manufacturer priced an upsized $575 million, from $515 million, issue of the 4 3/8% notes at par on Friday.

The yield printed at the tight end of yield talk in the 4½% area.

Friday fund flows

The daily cash flows of the dedicated high-yield bond funds were basically flat to slightly negative on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $40 million of outflows on the day, while actively managed high-yield funds were positive, posting $22 million of inflows on Friday, the source said.

Indexes

The KDP High Yield Daily index gained 4 basis points to close Monday at 70.5 with the yield now 3.43%.

The index saw a cumulative gain of 9 bps on the week last week.

The CDX High Yield 30 index rose 10 bps to close Monday at 109.78.

The index was down 12 bps on the week last week.

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