Yum! doubles; Novolex on deck; Ford at a premium; Owens & Minor gains; funds lose $2.7 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 24 – The domestic high-yield primary market continued to roll out offerings on Thursday with one drive-by pricing.

Yum! Brands, Inc. doubled the size of its offering to price $1 billion in 10-year senior notes (Ba3/BB).

Novolex Holdings LLC was also heard to be bringing a $1.98 billion two-tranche offering to fund Apollo’s buyout of the company.

Meanwhile, the secondary space saw another volley day between buyers and sellers with the market lower in the morning but closing unchanged to up 1/8 point, sources said.

“This market is like Jekyll and Hyde,” a source said.

While volatile in intraday activity, the swings between high and low were narrower than those seen in recent history.

Despite the volatility in the secondary space, the new paper to price during Wednesday’s session was putting in a strong performance.

Ford Motor Credit Co. LLC’s 4.95% senior notes due 2027 (expected ratings Ba2/BB+/BB+) were trading at a premium to their issue price although they remained on a par-handle.

Owens & Minor, Inc.’s 6 5/8% senior notes due 2030 (B2/B/BB-) continued to improve in active trading after a strong break.

Embecta Corp.’s 6¾% senior secured notes due 2030 (Ba3/B+) were not active in the secondary space with the small issue largely tucked away.

However, the notes were marked well above their discounted issue price.

Outside of recent issues, II-VI Inc.’s 5% senior notes due 2029 (B2/B+/BB) were active although little changed as market players eye developments in the optoelectronics components maker’s acquisition of Coherent.

Meanwhile, the multi-billion-dollar outflows continued with high-yield mutual and exchange-traded funds seeing $2.698 billion leave the space in the week through Wednesday’s close.

The outflow marked the 11th consecutive week funds have left the space.

Thursday’s primary

Pent-up demand, among investors, for a more robust new-issue calendar continued to be on exhibit during the Thursday session in the high-yield primary market, sources said.

Yum! Brands doubled the size of its notes offer to $1 billion from $500 million and priced the issue of 10-year senior notes (Ba3/BB) at par to yield 5 3/8% in a drive-by.

The yield printed at the tight end of yield talk in the 5½% area. Initial guidance was in the mid-to-high 5% area.

The deal was playing to a $2 billion order book, according to a sellside source who added that the new Yum! 5 3/8% notes broke to par bid, par ½ offered, late Thursday afternoon.

Meanwhile the market heard that Novolex Holdings LLC is expected to make a $1.98 billion two-part offering of high-yield notes during the week ahead, in support of the buyout of the company by Apollo.

Early expectations have the deal coming with a $750 million tranche of 6¾% secured notes to price at OID 97.5 and yield in the low-7% area, and a $1.23 billion tranche of 8¾% unsecured notes to price at OID 96 and yield in the mid-9% area.

Though not yet officially announced the deal is already drawing a crowd, a sellside source said.

Orders for the secured notes already exceeded the expected size of the tranche on Thursday morning, according to the source who added that the unsecured tranche is already 50% spoken for, at its expected size.

Ford at a premium

Ford Motor Credit’s newly priced 4.95% senior notes due 2027 were trading at a premium to their issue price in high-volume activity on Thursday.

However, the notes remained on a par-handle.

They were changing hands in a tight range of par 3/8 to par 5/8 heading into the market close.

The notes dominated activity in the secondary space with more than $200 million in reported volume.

Ford Motor Credit priced a $1.5 billion issue of the 4.95% notes at 99.987 to yield 4.95% on Wednesday.

The yield printed on top of yield talk.

The issue came cheap to several of Ford’s outstanding issues, sparking selling in the capital structure on Wednesday as the market awaited the new paper to break for trade.

While Ford Motor Credit’s 3 5/8% notes due 2031 were driven down 1 point on Wednesday, they were holding at 90 in light volume during Thursday’s session.

Owens & Minor gain

Owens & Minor’s 6 5/8% senior notes due 2030 continued to gain after a strong break with the demand for the notes seen during bookbuilding following them into the secondary space.

The notes reclaimed a 101-handle in active trading on Thursday and were changing hands in the 101 1/8 to 101 3/8 context heading into the market close, according to a market source.

There was $108 million in estimated volume.

The notes traded as high as 101¼ after breaking for trade between settling to close the day around par 5/8.

In a heavily oversubscribed offering, Owens & Minor priced an upsized $600 million, from $500 million issue of the 6 5/8% notes at par on Wednesday.

The yield printed at the tight end of yield talk in the 6¾% area.

Embecta tucked away

Embecta’s 6¾% senior notes due 2030 were not active in the secondary market with the small issue with a hefty yield largely tucked away, sources said.

However, the notes were marked well above their discounted offer price.

There was one small trade in the issue at par ½ on Thursday, a source said.

Embecta priced a $200 million issue of the 6¾% notes at 98.517 to yield 7% in a Wednesday drive-by.

The yield printed in the middle of yield talk in the 7% area.

II-VI active

II-VI’s 5% senior notes due 2029 were active although largely unchanged on Thursday as market players eye the photoelectronics maker’s acquisition of Coherent, which could trigger a par call if not consummated by the end of the year.

The 5% notes continued to trade near their all-time lows.

They were changing hands in the 96¾ to 97¼ context in high-volume activity.

There was $41 million in reported volume.

II-VI is awaiting China regulatory approval for its acquisition of Coherent with the merger end date of March 25 extended until the second quarter, the company reported on its earnings conference call.

II-VI priced a $990 million issue of the 5% notes at par in December 2021 to help fund the merger.

The notes will be redeemed at par if the merger is not completed by Dec. 15, 2022.

Indexes

The KDP High Yield Daily index fell 12 points to close Thursday at 61.19 with the yield now 5.6%.

The index was down 1 point on Wednesday, 22 points on Tuesday and 11 points on Monday.

The CDX High Yield 30 index rose 21 basis points to close Thursday at 105.62.

The index sank 43 bps on Wednesday, rose 44 bps on Tuesday and fell 37 bps on Monday.

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