Junk deals keep coming as calendar page turns; Rakuten skyrockets; UKG, Kodiak at premiums

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 31 – News volume remained intense in the junk bond primary market on Wednesday.

Dollar-denominated issuers raised $2.5 billion, completing deals that had been marketed by means of (mostly brief) roadshows.

Meanwhile, it was Fed Day in the secondary space and the Federal Open Market Committee’s announcement and chair Jerome Powell’s press conference sent markets in divergent directions.

Treasuries rallied in the runup to and in the aftermarket of the announcement with the 10-year Treasury yield falling below the 4% threshold to close the day down 11.5 basis points at 3.919%.

However, equities had heavy selling with the Fed squashing optimism about a March rate cut.

While “stocks took it on the chin,” after Powell came out with a mildly hawkish tone that held rates steady for longer than hoped, the Fed is still projecting three rate cuts in 2024, a source said.

And Treasuries prices reflect the cuts are coming.

The secondary space had a slightly heavy tone heading into the market close.

However, it remains strong with spreads “very tight” and new paper still coming with yields that are historically high, a source said.

The secondary space remained new issue focused with the majority of deals to recently clear continuing to trade at strong premiums to their issue prices.

Rakuten Group, Inc.’s 11¼% senior notes due 2027 (BB) skyrocketed in the aftermarket with the notes pricing at a discount but breaking above a 101-handle during Wednesday’s session.

UKG Inc.’s new 6 7/8% senior secured notes due 2031 (B2/B-/BB) added to gains after a strong break in heavy volume on Wednesday.

Kodiak Gas Services, LLC’s 7¼% senior notes due 2029 (B2/B+/BB) also maintained the strong gains made on the break despite some heaviness in the market.

Last day of the month

Executions on Wednesday were razor sharp in the primary, with three of the day’s four dollar tranches pricing through talk.

Husky Injection Molding Systems Ltd. and Titan Co Borrower, LLC priced a $1 billion issue of five-year senior secured notes (B3/B-) at par to yield 9%, 25 bps beneath the low end of yield talk.

The issue size decreased from $1.3 billion with the shift of $300 million of proceeds to the concurrent term loan.

Ineos US Finance LLC priced $725 million of five-year senior secured notes (Ba3/BB/BB+) at par to yield 7½%, at the tight end of talk.

Fiesta Purchaser, Inc. (Shearer’s Foods) priced a $500 million issue of seven-year senior secured notes (expected ratings B3/B) at par to yield 7 7/8%, 12.5 bps inside of talk.

And STL Holding Co., LLC, doing business as DSLD Homes, priced an upsized $275 million issue (from $250 million) of five-year senior notes (B1/B/BB-) at par to yield 8¾%, 12.5 bps inside of talk.

Deal color had all of Wednesday’s transactions playing to demand well in excess of deal sizes. The Husky deal was heard to be playing to $4.8 billion of demand ahead of the release of price talk.

In the case of Ineos, however, pricing may have ground down too tight.

When pressed for color, a trader – invoking a farm animal – had those par-pricing 7½% notes trading below the issue price at 99 5/8 bid, 99¾ offered, possibly poised to being lifted from those levels.

Next up

Wednesday’s action left in place an active deal calendar featuring more than $3 billion of business expected to clear ahead of the weekend.

One new deal was announced.

Copeland, the climate technologies business in which Blackstone acquired a majority stake from Emerson Electric Co. last year, plans to price $500 million equivalent of senior secured notes due Dec. 15, 2030 (existing ratings Ba3/BB-/BB+) on Thursday.

The company is bringing add-ons to the Emerald Debt Merger Sub LLC and Emerald Co-Issuer Inc. notes that priced last May in support of the Blackstone deal.

Rakuten skyrockets

In the secondary, Rakuten’s new 11¼% senior notes due 2027 skyrocketed in the aftermarket with the notes shooting through a 101-handle on Wednesday after pricing at a discount.

The 11¼% notes added 1 point to close the day in the 101¾ to 102¼ context, a source said.

Investors were chasing the chunky yield on the short-duration notes.

Rakuten priced an upsized $1.8 billion, from $1 billion, issue of the 11¼% notes at 97.83 to yield 12 1/8% on Tuesday.

The yield came in the middle of revised talk in the 12¼% area which tightened from earlier talk for a yield in the 12½% area.

UKG adds

UKG’s new 6 7/8% senior secured notes due 2031 continued to notch gains after a strong break with the notes closing the day on a 101-handle.

They were changing hands in the 101 1/8 to 101 3/8 context heading into the market close, which is largely where they opened the day, a source said.

The notes were unchanged by the heaviness in the market.

“They’re holding in,” a source said.

UKG priced a $2.5 billion issue of the 6 7/8% notes at par on Tuesday.

Pricing came at the tight end of talk for a yield in the 7% area.

Kodiak holds

Kodiak Gas’ 7¼% senior notes due 2029 were largely unchanged on the day with the notes holding the strong gains made on the break.

The 7¼% senior notes were wrapped around 101 throughout the session.

Kodiak Gas priced the $750 million issue at par on Tuesday.

The yield printed 12.5 bps tighter than yield talk in the 7½% area.

Fund flows

The dedicated high-yield bond funds had $501 million of net daily cash inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $378 million of inflows on the day.

Actively managed high-yield funds had $123 million of inflows on Tuesday, the source said.

With only Wednesday’s daily fund flow numbers remaining to go into the tally the dedicated junk funds are tracking $1.49 billion of net inflows for the week to Wednesday’s close, according to the market source.

Indexes

The KDP High Yield Daily index was unchanged on Wednesday and closed the day at 50.64 with the yield 6.8%.

The index shed 7 bps on Tuesday and inched up 1 bp on Monday.

The ICE BofAML US High Yield index was off 6.9 bps with the year-to-date return now 0.019%.

The index shed 2.8 bps on Tuesday and gained 14.9 bps on Monday.

The CDX High Yield 30 index fell 45 bps to close Wednesday at 105.54.

The index was down 17 bps on Tuesday after adding 14 bps on Monday.

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