Morning Commentary: Viper Energy notes maintain premium; Newfold Digital on deck

By Paul A. Harris

Portland, Ore., Oct. 13 – The high-yield bond market opened unchanged on Friday, sources said.

At mid-morning, with the Dow Jones industrial average up 0.4% and the 10-year Treasury yield down 6 basis points at 4.64%, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.23%, or 17 cents, at $72.98.

The freshly minted Viper Energy Partners LP 7 3/8% senior notes due November 2031 (Ba3/BBB-/BB-) maintained a premium to their new issue price at par 1/8 bid, par 5/8 offered, unchanged on the morning, according to a bond trader in New York.

The $400 million split-rated issue priced at par on the high-yield desk on Thursday.

Among other recent issues, the NCL Corp. Ltd. 8 1/8% senior secured notes due January 2029 (B1/BB-) were wrapped around par on Friday morning.

The $790 million issue priced at par on Wednesday.

The Civitas Resources, Inc. 8 5/8% senior notes due November 2030 (B1/BB-/BB) were also unchanged on the morning, trading at par ¾ bid, 101¼ offered, the trader said.

The $1 billion issue priced at par on Tuesday in a deal that was heard to be five-times oversubscribed.

In the primary market, Newfold Digital Holdings Group, Inc. talked its $500 million offering of five-year senior secured notes (B2/B/BB-) to yield 11¾% to 12%.

Official talk comes in line with initial guidance in the high-11% to 12% area.

The deal is set to price on Friday on an accelerated timeline. When it was announced earlier in the week, it was scheduled to remain in the market into the week ahead.

The active forward calendar features just one announced deal for the week ahead.

Co-issuers Global Aircraft Leasing Co., Ltd. (GALC) and Global Sea Containers II Ltd. (GSCL II) are on the road with a $1.95 billion offering of five-year senior PIK toggle notes (Ba2//BB-).

Initial talk has the deal coming with a cash coupon in the 11% area, with a whopping 200 basis points step-up for PIK coupons.

The issuers are in the market to pay off the GALC 6½% senior PIK toggle notes due September 2024.

Traders tracking the 2024 notes say that price movements point to some deal risk.

Prior to the new PIK toggle deal being announced, the 6½% notes were trading in the context of 94½ bid, 95½ offered, the trader recounted.

In the aftermath of the new deal announcement, they traded as high as 98, the source said.

However, the 2024 notes faded as the week wore on and were 95½ bid, 96 offered on Friday morning, which implies deal risk because they are expected to be taken out at par with proceeds from the new issue.

The book is heard to be 1/3 done, the trader said, noting that there is heard to be a substantial number of investors who hold the 2024 paper expressing a willingness to “roll” into the new bonds that would mature in 2028.

Fund flows

The high-yield ETFs sustained $101 million of daily cash outflows on Friday, extending year-to-date outflows from the ETFs to $10.097 billion, according to a market source.

Of those year-to-date outflows, $2.71 billion came out of short duration ETFs while the standard duration ETFs have sustained $7.387 billion of outflows thus far in 2023, the source said.

News of Thursday’s daily fund flows follows a Thursday afternoon report that the dedicated high-yield bond funds – the ETFs and the actively managed funds – sustained $2.45 billion of net outflows in the week to the Wednesday, Oct. 11 close.

That outflow follows the previous week’s $2.6 billion outflow, and extends the year-to-date cash flows of the dedicated junk funds to negative $20.663 billion, according to the market source.

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