Newell drives-by; junk bond secondary extends gains; Royal Caribbean erases losses

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 9 – Domestic high-yield primary market participants saw another active session with Newell Brands Inc. pricing $1 billion of split-rated senior notes (Ba1/BBB-/BB+) in two bullet tranches in a Friday drive by.

The week ahead is also set to be active with $3.5 billion of secured notes backing the leveraged buyout of Citrix Systems Inc. expected to surface.

Meanwhile, the secondary space closed the week on strong footing with the cash bond market rising another ½ to ¾ point, a source said.

The ICE BofAML US High Yield index closed the week up more than 1 point with year-to-date losses narrowing to a negative 9% handle and the CDX index jumped almost 3 points to reclaim a 101-handle.

Little has changed on the macro horizon to warrant the surge in risk assets with the market still widely expecting a 75 basis points rate increase in September.

However, the market has grown more comfortable with the revised forecast and remains optimistic about a slower pace of monetary tightening following the September meeting, sources said.

“The market expects another 110 bps in Fed Funds before a pause, meaning a slower pace of tightening is around the corner,” BofA analysts wrote in a BofA Global Research report.

With the Consumer Price Index report set for release next week and the Federal Reserve meeting taking place in less than two weeks, there is still plenty of time for volatility before accounts close the books on the third quarter, a source said.

NortonLifeLock Inc.’s two tranches of senior notes (B1/BB-/BB+), priced Thursday, dominated activity in the secondary space although with little movement in price.

Both tranches were stuck in a narrow range near par with the tight pricing of the notes leaving them little room to run, sources said.

Royal Caribbean Group’s 11 5/8% senior notes due 2027 (B3/B) erased losses from the previous two weeks with the notes returning to a 101-handle.

While Ford Motor Co.’s 6.1% senior green notes due 2032 (Ba2/BB+) remained below par, the notes made strong gains during Friday’s session.

Primary action

Newell Brands priced $1 billion of split-rated senior notes (Ba1/BBB-/BB+) in two bullet tranches in a Friday drive-by.

The deal included $500 million of 6 3/8% five-year notes and $500 million of 6 5/8% seven-year notes.

Both issues came at par, at the tight ends of talk.

Within minutes of launching the deal on Friday morning books were heard to have built to $1.5 billion across both tranches, a market source said (see related story in this issue).

Looking to the week ahead in the primary market, dealers are expected to come with as much as $3.5 billion of secured notes backing the LBO of Citrix Systems by Vista Equity Partners and Evergreen Coast Capital Corp.

That timing is not written in stone, a source said on Friday afternoon, adding that the Citrix bonds might not appear until the Sept. 19 week (commitments on the concurrent $4.05 billion term loan are due on Sept. 19).

Also the size of the secured notes offer continues to be the subject of discussion in the market, with some expecting the deal to come in an amount less than $3.5 billion, the source said.

The notes, which had been sidelined midsummer by market volatility that resulted in several conspicuously choppy executions, are being whispered in the high 8% area, a high-yield portfolio manager said.

Meanwhile the market awaits news on the Tellurian Inc. $1 billion notes/warrants project financing which had been expected to price during the post-Labor Day week.

NortonLifeLock stuck

NortonLifeLock’s two tranches of senior notes dominated activity in the secondary space.

Despite strong demand during bookbuilding with the offering heavily oversubscribed, the notes put in a lackluster performance in the secondary space.

The 6¾% senior notes due September 2027 and the 7 1/8% senior notes due September 2030 were roughly the same in the secondary space.

Both tranches traded as high as par ¾ during Friday’s session.

However, they were stuck in a range of par to par ¼ heading into the market close.

The 6¾% notes saw $136 million in reported volume and the 7 1/8% senior notes saw $117 million in reported volume.

The notes priced tight leaving them little room for movement in the secondary space, a source said.

In the first new deal since mid-August, NortonLifeLock priced an upsized $1.5 billion, from $1.2 billion, two-tranche offering on Thursday.

The deal included a $900 million tranche of five-year notes that priced at par with a coupon of 6¾% to yield 6.749%.

The yield came at the tight end of talk in the 6 7/8% area and tighter than initial guidance in the low-7% area.

The offering also included a $600 million tranche of eight-year notes that priced at par with a coupon of 7 1/8% to yield 7.124%.

The yield printed on top of talk that had the notes coming 37.5 basis points behind the five-year notes and tighter than initial guidance in the 7 3/8% area.

The deal was heard to have played to $4.5 billion in demand across both tranches.

Royal Caribbean erases losses

Royal Caribbean’s 11 5/8% senior notes due 2027 erased losses from the previous two weeks with the notes returning to a 101-handle.

The notes gained 1½ points during Friday’s session to change hands at 101¾ heading into the market close.

There was $10 million in reported volume.

The 11 5/8% notes were trading on a 97-handle less than one week ago.

However, they climbed more than 4 points over the past four sessions to return to their former trading range before the market downturn.

Prior to the late August sell-off, the notes had leveled off on a 101-handle.

Ford rises

Ford’s 6.1% senior green notes due 2032 made strong gains during Friday’s session although the notes remained firmly under water.

The 6.1% notes gained 1 3/8 points during Friday’s session to come back to a 98-handle.

The notes were marked at 98 bid, 98½ offered early in the session and continued to climb as the session progressed.

They were changing hands in the 98½ to 98¾ context heading into the market close, a source said.

There was $26 million in reported volume.

The notes opened the week on a 96-handle.

Fund flows

High-yield ETFs had $379 million of daily cash inflows on Thursday, the most recent session for which data was available at press time, according to market sources.

Actively managed high-yield funds were negative on the day, sustaining $81 million of outflows on Thursday.

News of Thursday's daily flows trailed a Thursday afternoon report that the combined funds saw $2.28 billion of net outflows in the week to the Wednesday, Sept. 7 close, according to Refinitiv Lipper.

The most recent outflow follows the previous week's $5.04 billion of net outflows, the second largest outflow of the year and the eighth largest outflow on record, according to a bond trader.

The $2.28 billion outflow reported on Thursday extends a three-week run of net outflows to $11.9 billion, the biggest outflows for such an interval since the period ending March 18, 2020, according to the market source.

Indexes

The KDP High Yield Daily index jumped 32 points to close Friday at 54.66 with the yield now 6.98%.

The index gained 22 points on Thursday and 20 points on Wednesday after falling 12 points on Tuesday.

The index posted a cumulative gain of 62 points on the week.

The ICE BofAML US High Yield index rose 62.9 bps with the year-to-date return now negative 9.976%.

The index gained 46.3 bps on Thursday and 27.8 bps on Wednesday after sliding 14.7 bps on Tuesday.

The index posted a cumulative gain of 122.3 bps on the week.

The CDX High Yield 30 index gained 68 bps to close Friday at 101.12.

The index was up 33 bps on Thursday, 107 bps on Wednesday and 88 bps on Tuesday.

The index jumped 296 bps on the week.

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