Frontier plans notes; Varex improves; WPX boosted; Cleveland-Cliffs up; American Airlines higher

By James McCandless and Paul A. Harris

San Antonio, Sept. 28 – The observation of Yom Kippur served to mute activity in the leveraged markets on Monday as news of mergers and acquisitions drove the majority of high-yield secondary activity.

Frontier Communications Corp. set an investor conference call for Tuesday to shop a $1.15 billion offering of seven-year first lien senior secured notes (B3/B+/BB+) with which it intends to exit bankruptcy.

New notes from Varex Imaging Corp. continued to improve after coming to market at the end of last week.

Meanwhile, in oil and gas, WPX Energy, Inc.’s issues saw a boost after news broke that it was being bought by a sector peer.

Steel name Cleveland-Cliffs, Inc.’s paper ended in a better position after announcing the acquisition of a competitor.

In the travel space, American Airlines Group, Inc.’s notes pushed higher after the company secured billions more in a loan from the federal government.

Commercial flyer United Airlines Holdings, Inc.’s issues varied.

Primary quiet

The observation of Yom Kippur served to mute activity in the leveraged markets on Monday, according to a trader.

Frontier Communications set an investor conference call for Tuesday to shop a $1.15 billion offering of seven-year first lien senior secured notes (B3/B+/BB+) with which it intends to exit bankruptcy.

A Tuesday through Thursday telephone roadshow will follow (see related story in this issue).

Varex improves

New notes priced by Varex continued to improve on Monday, traders said.

The 7 7/8% senior secured notes due 2027 rose 1 point to close at 104 bid.

Late last week, the Salt Lake City-based medical device maker priced the $300 million issue seven-year senior secured notes at par to yield 7.873%.

The yield came near the middle of 7¾% to 8% yield talk and wide to initial talk in the low 7% area.

The pricing came with covenant changes, which determine how the company may disburse cash and take on additional debt.

WPX boosted

Meanwhile, in oil and gas, WPX Energy’s issues saw a boost, market sources said.

The 4½% senior notes due 2030 jumped 7 points to close at 98½ bid.

Before the market opened on Monday, news broke that the Tulsa, Okla.-based independent oil and gas producer would merge with Devon Energy in a deal worth $2.56 billion.

The deal will be financed with stock, which would see Devon shareholders end up with a 57% stake in the new entity.

The company’s shareholders will get 0.5165 shares of Devon common stockfor each share of WPX owned.

“It makes sense for producers to start consolidating, from a cost standpoint,” a trader said. “And right now, there’s a lot of push for that. That’s why the bonds were taking off today.”

Cleveland-Cliffs better

Meanwhile, steel name Cleveland-Cliffs’ paper ended in a better position, traders said.

The 5 5/8% senior paper due 2027 rose 2¼ points to close at 92½ bid. The 6¼% senior paper due 2040 shot up 3¼ points to close at 77 bid.

Early Monday, the Cleveland-based iron mining company announced that it has agreed to acquire peer ArcelorMittal for about $1.4 billion in a cash and stock deal.

$505 million will be paid for with cash while the remaining to be paid for with equity.

Also included in the deal is $2 billion in liabilities, bringing the size of the deal to $3.4 billion.

This is the second acquisition the name has made this year after moving to purchase AK Steel in March.

AA higher, United varies

American Airlines’ notes pushed higher to kick off the week, traders said.

The 5% senior notes due 2022 improved by 2½ points to close at 69 bid. The 11¾% senior notes due 2025 tacked on 2 points to close at 97 bid.

As the market closed on Friday, news broke that the Fort Worth-based air carrier had secured a $5.5 billion loan from the federal government.

The funds are part of the original $25 billion package that was allocated to the industry in March as the onset of the coronavirus pandemic restricted travel.

Since then, some airlines have said that they do not intend to use their share, freeing up some funds to be redistributed.

The company could receive an additional $2 billion in October.

Chicago-based sector peer United Airlines’ issues varied.

The 5% senior notes due 2024 reached up 2½ points to close at 89 bid. The 4¼% senior notes due 2022 held level to close at 92 bid.

$324 million Friday outflows

The dedicated high yield-bond funds continued to see negative cash flows as last week closed out, sustaining $324 million of daily net outflows on Friday, according to a market source.

Actively managed high-yield funds saw $280 million of outflows on the day.

High-yield ETFs sustained $44 million of outflows on Friday, the source said.

Friday was the first in five days where outflows to the combined funds came to less than $1 billion, according to the market source.

Indexes up

Two high yield indexes were seen moving higher through Monday.

The KDP High Yield Daily index gained 16 basis points to 65.89 at Monday’s end with the yield declining to 5.84%.

The index was down 23 bps on Friday, 28 bps on Thursday and 22 bps on Wednesday.

The CDX High Yield 30 index picked up 12 bps to close Monday at 104.35.

The index dropped 31 bps on Friday, shaved off 2 bps on Thursday and sank 104 bps on Wednesday.

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