Junk: Newfold prices, jumps on break; Viper holds premium; Global Aircraft regains footing

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 13 – The domestic high-yield bond primary market had one deal price on Friday with one more carrying over the weekend on the forward calendar.

Newfold Digital Holdings Group, Inc. priced an upsized $515 million issue of five-year senior secured notes (B2/B/BB-) on an accelerated timeline.

The notes played to strong demand and skyrocketed.

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

The offering sparked movement in the company’s 6½% senior PIK toggle notes due Sept. 15, 2024 (B2), rising again on Friday although they continued to trade with a risk premium as market player’s expressed apprehension of Global Aircraft’s latest offering.

Meanwhile, it was a flat day in the secondary space with the cash bond market either side of unchanged after a volatile two weeks.

While renewed expectations for additional rate hikes led to heavy selling the previous week, a reinvigorated belief that the rate hike campaign had run its course led to blockbuster gains during Tuesday’s session.

While the market has wavered since Tuesday, it still closed Friday with strong weekly gains.

“No one really knows,” a source said. “The market doesn’t know.”

While the broader market remained firmly focused on the macro trade, new issues and topical news remained the drivers of trading activity during Friday’s session.

Viper Energy Partners LP 7 3/8% senior notes due 2031 (Ba3/BBB-/BB-) held on to the gains made on the break although the notes remained on a par handle.

While the notes made strong gains on Tuesday with the company launching a refinancing deal to take out the notes, they came in over the previous two sessions.

Medical Properties Trust Inc.’s 5¼% senior notes due 2026 (Ba1/BB+) made large gains in active trade on Friday following an asset sale.

Newfold Digital prices

In the primary market on Friday, Newfold Digital priced an upsized $515 million issue of 11¾% five-year senior secured notes (B2/B/BB-).

The deal – upsized from $500 million – came on an accelerated timeline.

It priced at par, at the tight end of talk.

The bonds were a point higher on the break, sources said.

Newfold Digital’s deal played to $770 million of demand, a sellside source said, adding that allocations were heard to be “okay.”

Three accounts were heard to have taken down more than half the bonds, the sellsider said, adding that the dealer was understood to have been keen on placing the notes in strong hands.

The notes skyrocketed on the break and stood poised to close the day at 101¾, a source said.

Global Aircraft eyed

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

Co-issuers Global Aircraft and Global Sea Containers 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, a trader recounted.

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

The 2024 notes faded as the week wore on with the notes trading back down to a 95-handle.

However, they were back on the rise in active trade on Friday with the notes regaining 1½ points to close the day at 96¾, a source said.

There was $17 million in reported volume.

The 6½% notes were trading with some risk premium with the market expressing some reservations about the new offering.

The notes are expected to be taken out at par with proceeds from the new issue.

A portfolio manager said that the drop in price does imply deal risk, but added that investors, including some of the holders of the $1.9 billion of outstanding 2024 notes, have suggested tweaks in the new notes, and the issuers appear poised to accommodate.

One interesting facet of the offer is its 200 bps PIK coupon step-up, which is conspicuously high compared to the customary 75 bps step-up on the typical PIK toggle note.

That’s meant to discourage PIK payments, they say.

The company PIK-paid the 2024 coupon three times, with the timing of the PIKs coinciding with the depths of the coronavirus pandemic in 2020.

There is also discussion of the company funding an escrow account for the purpose of making the initial payment(s) in cash, the sellsider said.

Viper Energy holds premium

Viper Energy’s 7 3/8% senior notes due 2031 held on unchanged during Friday’s session.

The 7 3/8% notes were marked at par 1/8 bid, par 5/8 offered early in the session and were wrapped around par ½ heading into the market close, a source said.

There was $11 million in reported volume.

The oil and gas company priced a $400 million issue of the 7 3/8% notes at par in a Thursday drive-by.

The yield printed at the wide end of yield talk in the 7¼% area.

Medical Properties recoups losses

Medical Properties’ 5¼% senior notes due 2026 made large gains in active trade on Friday following the completion of the sale of its Australian assets.

The 5¼% notes gained 1¼ points to close the day on an 88-handle.

They were trading in the 88 to 88 3/8 context heading into the market close, a source said.

There was $16 million in reported volume.

The notes were on the rise after the real estate investment trust announced the completion of the sale of its remaining Australian facilities for $305 million earlier in the week.

Proceeds will be used to pay down the company’s term loan and increase its liquidity, a source said.

Fund flows

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.

Indexes

The KDP High Yield Daily index gained 4 bps to close Friday at 49.03 with the yield 8.12%.

The index was down 19 bps on Thursday and 8 bps on Wednesday after gaining 41 bps on Tuesday.

The index gained 10 bps on the week.

The ICE BofAML US High Yield index gained 4.3 bps with the year-to-date return now 5.246%.

The index fell 33.1 bps on Thursday, was up 5 bps on Wednesday and shot up 95 bps on Tuesday.

The index was up 71.2 bps on the week.

The CDX High Yield 30 index was down 36 bps to close Friday at 100.07.

The index fell 32 bps on Thursday after gaining 14 bps on Wednesday and 31 bps on Tuesday.

The index was down 23 bps on the week.

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