Secondary soft; Tenet gives back gains; Spirit holds premium; funds add $319 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 3 – After two surprise deals during the week, the domestic high-yield primary market was dormant on Thursday, which is how it is expected to remain until the return from the Labor Day holiday.

However, when the primary market does return to action, market players are expecting to see a high-volume September provided market conditions remain favorable.

Meanwhile, after a slow grind tighter over the past two weeks, the secondary space was again showing signs of weakness on Thursday.

The cash bond market was down about ½ point as equity markets saw their first major pullback since June.

However, while there was softness in the space, trading volume remained muted.

Tenet Healthcare Corp.’s recently priced 6 1/8% senior notes due 2028 (Caa1/CCC+/B) remained the most actively traded issue in the secondary with the notes giving back their gains from the previous session.

Spirit Airlines, Inc.’s 8% first-lien senior secured notes due September 2025 (Ba3//BB+) were also active with the notes holding on to the enormous gains made after breaking for trade on Wednesday.

Virgin Media Finance plc’s 4½% senior notes due 2030 (Ba3/BB-/BB+) and 5% senior notes due 2030 (Ba3/BB-) had renewed attention in the secondary space with the notes trading down alongside the broader market.

While the market was weak on Thursday, money continued to enter the space in the week through Wednesday’s close with high-yield mutual and exchange-traded funds adding $319 million, according to the Refinitiv Lipper Fund Flows report.

A big September?

As headline news pummeled the U.S. capital markets on Thursday the high yield primary remained quiet, as it was expected to be during the final runup to the extended Labor Day weekend – the traditional summer-fall terminus in the bond market – which gets underway following Friday's close.

While the U.S. economy labors amid the challenges of the coronavirus pandemic, the high-yield market appears to be in excellent technical shape, a syndicate banker said on Thursday.

Although there are potential pitfalls ahead, dealers are nonetheless looking for a big September: $50 billion is certainly not impossible, given what we've seen in recent months, the banker said.

“That’s provided we continue to operate in a risk-on environment,” the banker clarified.

There are already a few things on the post-Labor Day underwritten calendar, the source said, declining to proffer specific names.

A mergers and acquisitions pipeline for late 2020 and early 2021 – pandemic or no – is certainly possible, said the banker.

The source pointed to the news that Blackstone Group and Global Infrastructure Partners made an offer for Kansas City Southern, with a market value of over $18 billion.

Although there is no certainty of how that financing might materialize, it is reasonable to expect that some of it will play out in the leverage markets, the source said.

Tenet gives back gains

Tenet Healthcare’s 6 1/8% senior notes due 2028 (Caa1/CCC+/B) continued to dominate activity in the secondary space with the notes giving back their gains from the previous session.

The 6 1/8% notes were down about 5/8 point.

They were marked at par bid, par 3/8 offered heading into Thursday’s close, a source said.

There was about $52 million in reported volume on Thursday, making it the most actively traded issue of the session.

After a lackluster break that saw the notes wrapped around par, the 6 1/8% notes traded up to 101 on Wednesday.

However, the notes from the CCC credit traded off amid the pullback in risk assets on Thursday.

Tenet priced a $2.5 billion issue of the 6 1/8% notes at par in a Tuesday drive-by.

It was the largest issue from a CCC credit in 2020, according to Prospect News data.

Spirit Airlines holds

Spirit Airlines’ 8% first-lien senior secured notes due September 2025 (Ba3//BB+) held on to their large gains in active trading on Thursday.

The 8% notes continued to trade in the 103¼ to 103¾ context, a source said.

There was about $30 million in reported volume during Thursday’s session.

Spirit Airlines priced an upsized $850 million issue of the 8% notes at 98.976 to yield 8¼% following a roadshow on Wednesday.

Pricing came at the tight end of talk for a yield of 8¼% to 8½% that included a discounted offer price.

The notes skyrocketed after breaking for trade and closed Wednesday on a 103-handle.

“This is a fine credit and it came way too cheap,” a source said.

The deal played to heavy demand and was heard to be eight- to ten-times oversubscribed.

Virgin Media trades down

Virgin Media’s recently priced 4½% senior notes due 2030 (Ba3/BB-/BB+) and 5% senior notes due 2030 (Ba3/BB-) saw renewed attention on Thursday with the notes trading off.

The 4½% notes traded down about ¾ point, a source said.

They were changing hands in the 104½ to 105 context with about $11.25 million in reported volume heading into the market close.

The 5% notes were down about ¼ point to close Thursday at 103½ with about $10 million in reported volume.

The notes were trading off amid the general weakness in the market.

Virgin Media priced a $675 million issue of the 5% notes and a $650 million issue of the 4½% notes at par in June.

Record inflows to high-grade

While the dedicated high-yield bond funds saw relatively modest inflows of $319 million in the week to Wednesday's close, the dedicated investment grade bond funds had a record $10.7 billion of weekly inflows during the same period, according to a bond trader focused on higher quality speculative grade credits, crossover names and lower tier investment grade bonds.

Indexes mixed

Indexes were mixed on Thursday with some posting nominal gains while others saw large losses.

The KDP High Yield Daily index was up 2 basis points to close Thursday at 67.38 with the yield now 5.21%. The index was up 7 bps on Wednesday and 6 bps on Tuesday after shaving off 2 bps on Monday.

The ICE BofAML US High Yield index dropped below the 1% benchmark after crossing above it on Wednesday.

The index was down 15.8 bps with the year-to-date return now 0.907%.

The index was up 19.1 bps on Wednesday, 12 bps on Tuesday and 5.8 bps on Monday.

The CDX High Yield 30 index sank 66 bps to close Thursday at 105.77. The index was up 7 bps on Wednesday, 64 bps on Tuesday and 10 bps on Monday.

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