Primary sells two deals; PetSmart on deck; new paper trades up; funds lose $2.513 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 29 – Primary market news flow tapered off on Thursday, and is apt to continue to decrease ahead of the Nov. 3 elections in the United States, sources say.

A pair of deals priced on Thursday.

Of those, the CCM Merger Inc. (MotorCity) $275 million issue of 6 3/8% 5.5-year senior notes (Caa1/B+) was heard to have gone well, with the 6 3/8% yield printing inside of talk. Reverse inquiry at play in the traded amounted to twice the size of the deal.

Meanwhile, the secondary space stood poised for another ugly session at the market open.

However, the tone improved following positive economic data and the secondary space closed the day largely unchanged, a source said.

Focus remains on lockdown measures taken by European nations and spiking Covid-19 cases in the U.S., a source said.

However, earnings and new paper were the driving force of trading activity, which was light on Thursday, as many sat on the sidelines waiting to see the future direction of the market.

The deals to clear the primary market during Thursday’s sell-off were performing well in the secondary space.

P&L Development, LLC 7¾% senior notes due 2025 (B3/B-/B), Academy Ltd.’s 6% senior notes due 2027 (B2/B) and United Shore Financial Services, LLC’s 5½% senior notes due 2025 (Ba3//B+) were all trading with premiums in the secondary space.

However, Academy’s new notes were trading off their high heading into the market close.

Meanwhile, fund flows reversed course with a multi-billion-dollar outflow for the week through Wednesday’s close.

High-yield mutual and exchange traded funds had $2.513 billion leave the space, according to the Refinitiv Lipper US Fund Flows report.

Friday calendar

Thursday's action left in place a hefty $4 billion deal calendar for Friday.

PetSmart LLC and PetSmart Finance Corp. have the biggest offer on tap, an upsized $2.65 billion two-part offering, increased from $2.35 billion with the shift of $300 million from the bank loan.

Pricing on all tranches – secured notes, secured loan and unsecured bonds – widened substantially (see related story in this issue).

The deal underwent substantial covenant changes which might prevent the rates from further hemorrhaging, a trader said.

However late Thursday the PetSmart secured and unsecured tranches were by no means done, the source added.

Of all three tranches the secured notes appeared to be faring best, with $1.2 billion of orders for the $1.5 billion tranche.

The term loan was a work in progress, late Thursday, the trader said: $1.4 billion in the book for the downsized $2 billion tranche.

The unsecured notes were playing to just $500 million of orders for a $1.15 billion tranche.

Away from PetSmart the Friday session is expected to generate terms on three other deals from Yankee issuers plus a dollar-denominated tranche of to-be-determined size as part of British luxury sports car maker Aston Martin Lagonda's £840 million equivalent of five-year senior secured notes (Caa1/existing CCC) in dollars and euros, both in the market with early guidance in the high 8% to 9% area.

The market wants a president

Although recent market volatility has been Covid-related, the notably thin liquidity that has been overtaking junk since the beginning of the week is election-related, a veteran bond trader said on Thursday afternoon.

People were surprised by the big calendar during the run-up to the national election, the source noted.

As a result, some of the “clubbier” deals are getting pushed out, the trader said.

With respect to the approaching presidential election, what would be a happy ending for the high-yield market? – Prospect News inquired of this market veteran.

Would the high-yield market favor Trump over Biden?

“The market wants a president,” the trader said, evenly.

“The worst outcome would be if the election gets held up in the court.”

P&L soars

P&L’s 7¾% senior notes due 2025 were outperformers in the secondary space, although volume in the name was light.

The notes were marked at 101¾ bid, 102 offered, a source said.

However, only $5 million of the bonds were on the tape during Thursday’s session.

The notes from the supplier of over-the-counter drugs carried a nice coupon, a source said.

The deal was also heard to be oversubscribed during bookbuilding.

P&L priced a $415 million issue of the 7¾% notes at par amid Thursday’s sell-off.

Pricing came in the middle of yield talk in the 7¾% area.

United Shore active

United Shore’s 5½% senior notes due 2025 (Ba3//B+) were putting in a strong performance in the secondary space.

The notes traded in a range of par 3/8 to 101 during Thursday’s session with the notes gaining strength into the close.

They were marked at par ½ bid, 101 offered at the market close, a source said.

There was more than $15 million in reported volume during Thursday’s session.

The mortgage lender priced an $800 million issue of the 5½% notes at par on Wednesday.

The yield printed on top of final yield talk, which had widened from earlier formal talk in the 5¼% area.

Academy weakens

Academy’s 6% senior notes due 2027 maintained a premium in active trading on Thursday although the notes were coming in from their highs.

After closing out the previous session at 101, the 6% notes were changing hands at in the par ¼ to par ½ context heading into Thursday’s close, a source said.

The sporting goods and outdoor recreation retailer priced a $400 million issue of the 6% notes at par on Thursday.

The yield printed at the wide end of the 5¾% to 6% yield talk.

Indexes mixed

Indexes were mixed on Thursday with some continuing to see losses while others posted nominal gains.

The KDP High Yield Daily index took off another 12 bps to close Thursday at 66.16 with the yield now 5.61%.

The index dropped 35 points on Wednesday, 5 points on Tuesday and 11 points on Monday.

The ICE BofAML US High Yield index gained 1.6 bps with the year-to-date return now 0.193%.

The index was down 69.9 bps on Wednesday, 8.3 bps on Tuesday and 30 bps on Monday.

The CDX High Yield 30 index dropped another 15 bps to close Thursday at 103.65.

The index plummeted 112 bps on Wednesday after dropping 16 bps on Tuesday and 67 bps on Monday.

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