Primary prices $3.2 billion; Hawaiian outperforms; Viking, Rocket, Life Time flat

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 29 – Three issuers raised a total of $3.2 billion in four tranches on Friday, bringing total issuance for the week to $16.7 billion.

The coming week also promises to be active with Rackspace Technology Global Inc. and Macy's Inc. expected to bring deals.

Meanwhile, it was an active day in the secondary space with an influx of new paper from Thursday’s session and American Airlines Group, Inc.’s and AMC Entertainment Holdings, Inc.’s junk bonds continuing to rally in heavy volume.

The new deals followed different trajectories in the secondary space with some lagging their issue prices, some falling flat and some posting gains.

While Viking Cruises Ltd.’s secured notes were wrapped around their issue price in high-volume activity, the cruise line operator’s unsecured notes were lagging – a surprise to some sources given the demand during bookbuilding.

Rocket Software Inc.’s 6½% senior notes due 2029 (Caa2/CCC+) and Life Time Inc.’s 8% senior notes due 2026 (Caa3/CCC-) and were largely flat in the aftermarket.

However, Hawaiian Airlines’ 5¾% five-year first-lien senior secured notes (Ba3//B+) outperformed with the notes several points above their discounted issue price.

ZoomInfo Technologies LLC’s 3 7/8% senior notes due 2029 (B3/B-) were also trading at a large premium to their issue price.

Friday’s primary

Three issuers raised a total of $3.2 billion from a combined four tranches of dollar-denominated junk on Friday.

It brought total issuance for the final week of January 2021 to an impressive $16.7 billion.

Friday's executions were razor sharp, with two tranches pricing inside of talk, while the other two priced at the tight- or rich ends of talk (see related stories in this issue).

As the big week drew to a close, and the stock market sold off for the second consecutive day, a trader noted signs of fatigue in the junk bond market, with some selling taking place after lunchtime.

The massive calendar that we had this week caused some indigestion among investors, the trader remarked.

As the lights went down on a humungous $53.8 January, the biggest month in the market since last June ($58.2 billion), it was unclear whether February would take up where January left off.

Although the week ended with no announced calendar, a modicum of business appears headed into the new issue market during the Feb. 1 week, sources say.

Look for Rackspace to come with a $650 million offering of secured notes, led by Citigroup, as the company is using the bond and bank loan markets to address term loan debt.

And Macy's is coming with an expected offering of seven-year unsecured notes, via BofA, as it addresses 2022 and 2023 maturities. The size of the deal remains to be announced, but it should be chunky, the source said.

Flat

Several recent deals fell flat in the aftermarket, which sources attributed to general market conditions.

The secondary space was again soft on Friday and several recent deals were from lower-rated credits, a source said.

Rocket Software’s 6½% notes due 2029 traded as low as 99 3/8 on Friday. However, the majority of prints were at par, a source said.

There was more than $47 million in reported volume during Friday’s session.

Rocket Software priced an upsized $575 million, from $500 million, issue of the 6½% notes at par on Thursday.

Pricing came in the middle of yield talk in the 6½% area.

Life Time’s 8% senior notes due 2026 were also largely stuck at their issue price in active trading.

Life Time priced a $475 million issue of the 8% notes at par to yield 7.99%.

Pricing came in the middle of yield talk in the 8% area.

Both issues were triple-C credits and Friday was a risk-off day, sources said.

Mixed Viking

Viking’s two tranches also underperformed expectations with the secured tranche stuck at par and the unsecured tranche lagging.

Viking’s 5 5/8% senior secured notes due 2029 traded in a range of 99½ to par 5/8 during Friday’s session.

However, the notes were changing hand in the 99 7/8 to par 1/8 context heading into the market close, a source said.

However, Viking’s 7% senior notes due 2029 traded in a range of 99½ to par 1/8 with the majority of prints on a 99-handle.

The trading levels were a surprise to some sources. “I’m shocked it’s not doing well since books were pretty huge,” a source said.

Both tranches were as much as 7x oversubscribed, the source said.

Viking Cruises Ltd. priced a $350 million issue of the 7% unsecured notes and Viking Ocean Cruises Ship VII Ltd. priced a $350 million issue of the 5 5/8% notes at par on Thursday.

Both tranches priced tighter than talk.

Outperformers

While the market was soft and several recent issues fell flat, ZoomInfo’s 3 7/8% senior notes due 2029 and Hawaiian Airlines’ 5¾% five-year first-lien senior secured notes outperformed.

Hawaiian’s 5¾% notes traded in a range of 103 5/8 to 104¼ throughout Friday’s session.

There was more than $108 million in reported volume.

Hawaiian Airlines priced an upsized $1.2 billion, form $800 million, issue of the 5¾% notes at 99.449 to yield 5 7/8% on Thursday.

Pricing came at the tight end of yield talk in the 6% area.

ZoomInfo’s 3 7/8% senior notes due 2029 were also trading with a healthy premium.

The notes continued to trade on a 101-handle on Friday and stood poised to close the day at 101½, according to a market source.

The notes were marked at 101 bid, 101½ offered after breaking for trade on Thursday.

The deal was a “blowout,” and was as much as 10x oversubscribed, a source said.

ZoomInfo priced an upsized $350 million, from $300 million, issue of the 3 7/8% notes at par on Thursday.

Pricing came at the tight end of yield talk in the 4% area.

The rally

The rally in AMC Entertainment’s and American Airlines’ junk bonds continued on Friday.

AMC’s 12% senior notes due 2026 shot up almost 8 points to close Friday at 73 5/8, according to a market source.

The notes continued to see heavy volume with $48 million on the tape.

The notes gained more than 30 points over the course of the week. They closed last Friday at 40.

The rally in the notes began on Monday when the company announced a bankruptcy filing was no longer on the table.

The rally was extended on Friday by a rating upgrade from S&P Global Ratings.

S&P announced it was raising AMC’s issuer rating to CCC- from SD and its second-lien notes to C from D.

However, S&P cut AMC’s first-lien debt to CCC- from CCC, stating that the debt levels in its capital structure are unsustainable (see related article in this issue).

American Airlines’ 5% senior notes due 2022 rose another 1½ points to close Friday at 94 with more than $34.5 million in reported volume.

The notes have gained more than 6 points on the week.

American Airlines’ 3¾% senior notes due 2025 were up more than 2 points to close the day at 76 5/8.

The rally in American Airlines’ notes was further propelled by the company’s announcement that it was pricing a secondary offering of $1 billion shares.

The capital raise will further bolster the company’s balance sheet.

“The bonds reacted favorably,” a source said. “It was a smart move from management.”

Both AMC Entertainment and American Airlines have been center stage to the unfolding battle on Wall Street between retail traders and short-sellers with retail traders banding together to drive up stock prices and squeeze short-sellers out of their positions.

ETFs: $896 million inflows

High-yield ETFs took in a hefty $896 million of daily cash inflows on Thursday, the most recent day for which data was available at press time, according to a market source.

Actively managed high-yield funds were slightly negative on the day, sustaining $10 million of outflows on Thursday.

News of Thursday's daily fund flows trails a Thursday afternoon report that the combined high-yield funds sustained $1.33 billion of net outflows to the Wednesday, Jan. 27 close, the market source said.

That's the biggest outflow since the first week in December, and the sixth weekly outflow in the past seven weeks, the source noted, adding that the net year-to-date fund flows of the combined funds were negative-$3.6 billion, to Thursday's close.

Indexes down

Indexes closed the week in the red.

The KDP High Yield Daily index was down 4 points to close Friday at 69.25 with the yield now 4.31%.

The index was up 3 points on Thursday, dropped 9 points on Wednesday and 4 points on Tuesday after gaining 1 point on Monday.

The index was down 13 points on the week.

The ICE BofAML US High Yield index shaved off 8.7 bps on Friday with the year-to-date return now 0.367%.

The index gained 12.5 bps on Thursday, dropped 18.3 points on Wednesday, and gained 2.3 bps on Tuesday and 4.8 bps on Monday.

The index was down a cumulative 7.8 bps on the week.

The CDX High Yield 30 index dropped 8 points to close Friday at 109.98.

The index gained 16 points on Thursday after sinking 48 points on Wednesday, 15 points on Tuesday and 11 points on Monday.

The index posted a cumulative loss of 66 points on the week.

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