PBF Energy outperforms in HY secondary; Sylvamo gains; Royal Caribbean improves

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 27 – The domestic high-yield new issue market remained quiet on Friday and is expected to remain that way in the run-up to Labor Day.

While sources expect an active September post-Labor Day, only one issuer has formally announced their intention to price an offering.

Meanwhile, the secondary space shot higher amid thin volume following Federal Reserve Chair Jerome H. Powell’s highly anticipated speech regarding the future of the Fed’s monetary policy.

While Powell indicated bond tapering would begin before the end of the year, which was widely anticipated, investors poured into risk assets following his dovish tone regarding future rate hikes.

“The high-yield market keeps going higher,” a source said.

However, while the market was strong, already-thin volume slowed to a trickle on Friday.

PBF Holding Co. LLC’s 9¼% senior secured notes due 2025 were in focus with the notes continuing to march higher.

The petroleum refiner’s capital structure outperformed over the past week with its junk bonds gaining 7 to 15 points amid an expected loosening of biofuel blending mandates.

While the deal struggled during bookbuilding, Sylvamo Corp.’s recently priced 7% senior notes due 2029 (B1/BB) caught a bid with the notes up almost 4 points on the week.

Royal Caribbean Cruises Ltd.’s 5½% senior notes due 2026 (B2/B) continued to improve on Friday with the notes climbing higher after breaking above par earlier in the week.

The primary

Although the Federal Reserve may taper its $120 billion-per-month asset purchase program in the intermediate term, for the present, and in light of the pandemic, that program will remain in place, Fed chair Jerome Powell said in a speech delivered virtually on Friday, from the Fed's annual convention at Jackson Hole, Wyo.

That's welcome news for the bond market which has tended to perceive the Fed's asset purchase program as undergirding the market, a bond trader said on Friday.

It may signal that the next leg in the bond market – indeed in the capital markets – is up, the trader added.

The high-yield new issue market remained quiet on Friday, and is expected to remain mostly (if not completely) quiet in the run-up to the Labor Day weekend, which begins in one week.

Thus far only one issuer has officially telegraphed a post-Labor Day offering, by means of a press release.

Ahern Rentals, Inc. said on Thursday that it expects to sell bonds during September in order to refinance $550 million of its 7 3/8% second-priority senior secured notes due 2023.

Meanwhile, activity in the European high-yield new issue market is expected to ramp up in the week ahead, as market participants return from their August vacations, sources in London say.

PBF Holding outperforms

PBF Holdings’ capital structure outperformed over the past week with its secured notes gaining as much as 7 points and its unsecured notes surging as much as 15 points.

PBF’s 9¼% senior secured notes due 2025 were the most actively traded notes on an otherwise lethargic day in the secondary space.

The notes climbed 3¾ points to close the day at 97¼, according to a market source.

There was more than $29 million in reported volume.

PBF’s 6% senior notes due 2028 climbed 5 points to close the day at 67. The notes have climbed more than 15 points over the past week.

PBF’s capital structure surged over the past week as market participants expect a reduction in the Environmental Protection Agency’s biofuel blending mandates, a source said.

Sylvamo catches a bid

Sylvamo’s recently priced 7% senior notes due 2029 caught a bid over the past week despite struggling during bookbuilding.

The 7% notes gained more than 1 point to climb to a 103-handle on Friday.

The notes were marked at 103 bid, 103¼ offered early in the session.

They continued to climb as the session progressed and were changing hands in the 103 5/8 to 103 7/8 context heading into the market close, a source said.

There was $10 million in reported volume.

The notes have gained more than 3 points over the past week.

They were marked at par ¼ bid on Monday.

Sylvamo priced a downsized $450 million, from $500 million, issue of the 7% notes at par on Aug. 20.

The notes priced at the wide end of the 6¾% to 7% yield talk and underwent covenant changes prior to pricing.

Royal Caribbean climbs higher

Royal Caribbean’s 5½% senior notes due 2026 continued to climb higher on Friday after breaking par earlier in the week.

The 5½% senior notes traded in a range of par 1/8 to par ½ during Friday’s session, a source said.

They stood poised to close the day at par ½.

There was more than $13 million in reported volume.

The 5½% notes have largely traded on a 99-handle since pricing on Aug. 11.

However, they jumped above par following FDA approval of Pfizer’s Covid-19 vaccine on Monday.

$87 million Thursday inflows

The dedicated high-yield bond funds saw $87 million of net inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $47 million of inflows on the day.

Actively managed high-yield funds saw $40 million of inflows on Thursday, the source said.

News of Thursday's daily flows trails a Thursday report that the dedicated junk bond funds saw $532 million of net inflows during the week to the Wednesday, Aug. 25 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

Year-to-date cash flows for the combined funds ended the most recent week at negative-$14 billion, according to the market source.

Indexes

The KDP High Yield Daily index gained 5 basis points to close Friday at 70.05 with the yield now 3.68%.

The index climbed 4 bps on Thursday, 7 bps on Wednesday, 9 bps on Tuesday and 4 bps on Monday.

The index posted a cumulative gain of 29 bps on the week.

The CDX High Yield 30 index rose 47 bps to close Friday at 109.83.

The index fell 19 bps on Thursday after gaining 11 bps on Wednesday, 5 bps on Tuesday and 32 bps on Monday.

The index rose 76 bps on the week.

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