Maxim Crane on junk deck; Tenneco tanks; Crestwood soars on acquisition; Coherent falls

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 16 – The junk bond new issue market remained quiet on Wednesday with one deal remaining on the forward calendar.

Maxim Crane Works Holdings Capital, LLC is on deck with a $500 million offering of five-year second priority senior secured notes (Caa1/B-) with pricing expected on Thursday.

Sources expect the offering to be JPMorgan’s last deal before Labor Day with the pipeline expected to be thin over the next two weeks.

Meanwhile, it was a soft day in the secondary space with the release of the Federal Open Market Committee’s July meeting notes throwing cold water on market optimism that the Fed’s rate-hike campaign was coming to an end.

The cash bond market was flat early in the session but selling set in after the release of the minute notes, which reflected continued concern about inflation and the need to raise rates.

While the market is still widely anticipating a pause in September, debate continues about what to expect in November.

Federal Reserve chair Jerome Powell’s comments at the Jackson Hole summit next week will be a closely watched event.

While the cash bond market held up comparatively well and closed Wednesday’s session off about 1/8 point, some sources predict the weakness of the past few sessions to be the start of a growing downtrend.

“Maybe we’ll sell off for real tomorrow,” a source said.

While the broader market had a weak close on Wednesday, trading was muted with new paper and topical news the drivers of activity during the session.

Tenneco Inc.’s 8% senior secured notes due 2028 (B1/B) claimed the title of the worst performing new deal on the break with the notes falling 3 points below their deeply discounted issue price.

Crestwood Midstream Partners LP's senior notes (Ba3/BB) outperformed on Wednesday with the notes jumping 3 to 5 points following news of the company’s acquisition by Energy Transfer LP.

Earnings continued to spark outsized moves in outstanding issues with Coherent Inc.’s (formerly II-VI Inc.) 5% senior notes due 2029 (B2/B+) sinking 3 to 4 points on disappointing results.

Maxim on deck

The new issue market remained quiet on Wednesday.

In the wake of a comparatively active opening half of August ($10.3 billion in 15 tranches versus $6.7 billion for all of July) only one deal remains on the active forward calendar.

Maxim Crane Works, LP is shopping a $500 million offering of Maxim Crane Works Holdings Capital, LLC five-year second priority senior secured notes, in the market with initial guidance of 11¾% to 12%, and expected to price on Thursday.

The deal followed $375 million to $400 million of reverse inquiry into the market, sources say.

J.P. Morgan Securities LLC is on the left for the Maxim Crane deal.

Word continues to circulate the market that it will be JPMorgan’s last deal before Labor Day, sources say.

Summer 2023 high yield bond issuance could be pretty well played out, a New York junk bond trader said on Wednesday.

Issuance in the runup to Labor Day, two-and-a-half weeks hence, is apt to be sparse, indeed, sources are saying.

Tenneco tanks

Tenneco’s 8% senior secured notes due 2028 claimed the prize for the worst performing deal on the break in 2023 and continued to move lower during Wednesday’s session.

The notes dropped 2 points below their deeply discounted issue price on the break ending the previous session on an 83-handle.

While there was a minor reprieve early in Wednesday’s session with the notes bouncing up to 83½ bid, 84 offered, they sank to an 82-handle by the close.

The notes were ended the day at 82 1/8 bid, 82 3/8 offered with the yield rising to about 12¾%.

The performance was not a surprise with market sentiment regarding Apollo leveraged buyouts low, a source said.

Tenneco priced an upsized $1.9 billion, from $1.75 billion, issue of the 8% senior secured notes at 85 to yield 11.933% on Tuesday.

The issue price came at the cheap end of price talk in the 85.5 area. Initial price guidance was 85 to 86.

The deal was marketed to clear hung debt from Apollo’s buyout of Tenneco in November 2022.

Despite the large yield, the deal did not come cheap enough, sources said.

Crestwood’s acquisition

Crestwood’s senior notes were the shining stars of Wednesday’s session with the notes jumping 3 to 5 points following the company’s acquisition by Energy Transfer.

Crestwood’s 6% senior notes due 2029 jumped 5 points to a 98-handle.

They were changing hands in the 98 to 98½ context heading into the market close with the yield about 6 3/8%, a source said.

There was $35 million in reported volume.

Crestwood’s 7 3/8% senior notes due 2031 jumped 4½ points to close the day at 103½ with the yield also about 6 3/8%.

There was $30 million in reported volume.

The 5 5/8% senior notes due 2027 jumped 4 points to 98½ with the yield about 6%.

The 8% senior notes due 2029 jumped 3 points to 104 with the yield also about 6 3/8%.

There was $12 million in reported volume.

Crestwood’s capital structure was lifted following news Energy Transfer would acquire the company in an all-stock transaction with an enterprise value of $7.1 billion.

Energy Transfer is an investment grade-rated company with the acquisition a credit boost for Crestwood, a source said.

Crestwood’s notes will remain outstanding in the acquisition with the market expecting the notes to be receive an investment-grade rating.

Moody’s Investors Service placed Crestwood on watch for upgrade and S&P Global Ratings boosted Energy Transfer’s unsecured debt to BBB from BBB- as a result of the acquisition, Prospect News reported.

Coherent’s earnings

Coherent’s 5% senior notes due 2029 were the laggards of Wednesday’s session with the notes falling about 3 points following earnings.

The 5% notes sank to an 86-handle by the close and were changing hands in the 86½ to 86¾ context, a source said.

There was $20 million in reported volume.

The notes closed the previous session on an 89-handle.

Coherent’s capital structure took a hit with its stock down about 30% after reporting.

Coherent’s earnings were not terrible with revenue coming in above and EBITDA largely in line with expectations.

However, forward guidance was much weaker than anticipated, a source said.

Fund flows

The dedicated high-yield bond funds sustained $349 million of net daily cash outflows on Tuesday, according to a market source.

High-yield ETFs had $334 million of outflows on the day.

Actively managed high-yield funds sustained $15 million of outflows on Tuesday, the source said.

Indexes

The KDP High Yield Daily index was down 10 basis points to close Wednesday at 49.98 with the yield now 7.67%.

The index was down 14 bps on Tuesday and 1 bp on Monday.

The ICE BofAML US High Yield index was off 3.8 bps with the year-to-date return now 6.346%.

The index was down 17.8 bps on Tuesday and 44 bps on Monday.

The CDX High Yield 30 index was down 32 bps to close Wednesday at 102.06.

The index fell 39 bps on Tuesday after adding 9 bps on Monday.

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