TransDigm, Restaurant Brands, Tenet price; Carnival flat; record $7 billion funds inflow

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 2 – In the high-yield bond market it was risk-on during the Thursday session, as the new issue bourse saw its first multiple-issue session since it closed due to volatility in early March

TransDigm Inc., Restaurant Brands International Inc. and Tenet Healthcare Corp. priced new issues against a backdrop of global news headlines that could scarcely have been more dire as the number of confirmed coronavirus cases, worldwide, crossed the 1 million threshold.

Meanwhile, the secondary space was largely flat on Thursday with volume light as illiquidity continues to stall the market.

While TransDigm and Tenet Healthcare prepped new offerings, their outstanding notes were trading off as they became less attractive to investors.

Carnival Corp.’s newly priced 11½% three-year first-priority senior secured notes (Baa2/BBB-), high-grade paper that played to high-yield accounts, were largely wrapped around their issue price in high-volume activity.

With crude oil futures skyrocketing following a series of positive headlines, the junk bonds of recent fallen angels Occidental Petroleum Corp. and Western Midstream Operating, LP led the gains in the energy sector.

While the secondary space was largely unchanged on Thursday, fund flows signaled investors’ increased confidence in the high-yield market.

The market learned that the dedicated high-yield bond funds experienced a record $7.092 billion of inflows during the week to Wednesday's close, according to the Refinitiv Lipper Fund Flow report.

They priced tight

Thursday's executions appeared razor sharp, with issuers raising a combined total of $2.3 billion in three tranches, two of which were upsized.

All three priced tight to - or inside of - price talk in drive-by transactions.

TransDigm Inc. priced an upsized $1.1 billion issue of 5.75-year senior secured notes (Ba3/B+) at par to yield 8%.

The issue size increased from $1 billion.

The yield printed at the tight end of the 8% to 8¼% yield talk.

Tenet Healthcare Corp. priced an upsized $700 million issue of five-year senior secured first-lien notes (B1/BB-/B+) at par to yield 7½%.

The issue size increased from $500 million.

The yield printed at the tight end of the 7½% to 7¾% yield talk, and inside of early guidance in the high 7% area.

The deal went well, with the notes playing to an order book that was heard to be three- to four-times oversubscribed, according to a New York-based trader.

And Restaurant Brands International Inc. priced a $500 million issue of five-year first-lien senior secured notes (existing ratings Ba2/BB+) at par to yield 5¾%.

The yield printed 12.5 basis points inside of yield talk in the 6% area.

Restaurant Brands played to an order book that was three- to four-times oversubscribed, according to the bond trader who added that the new 5¾% secured notes traded to 101¼, late Thursday.

Primed

As TransDigm and Tenet Healthcare launched new offerings, their outstanding senior notes were trading off in decent volume.

TransDigm’s 5½% senior notes due 2027 took off 5 points to change hands at 75½ in the late afternoon, according to a market source.

The bonds saw more than $15 million in reported volume.

The notes were also down almost 8 points in active trading on Wednesday.

While less active, TransDigm’s 6 3/8% senior notes due 2026 sank 7¾ points to close Thursday at 84¼.

TransDigm’s new offering of senior secured notes, which priced with a yield of 8%, made the Ohio-based commercial and military aerospace components maker’s senior subordinated unsecured notes less attractive, a source said.

The new offering pushed the 6 3/8% notes and the 5½% notes further down the capital structure.

The movement in Tenet Healthcare’s 4 7/8% senior notes due 2026 was less extreme.

The 4 7/8% notes traded as low as 88½ in intraday activity but stood poised to close the day down about ½ point at 90, according to a market source.

The bonds had about $13 million in reported volume.

Much like Tenet’s new offering, the 4 7/8% notes are also first-lien.

However, the 4 7/8% notes have a longer duration and a lower coupon than Tenet’s new offering.

Even at a discount, the 4 7/8% notes were yielding 7%, which is lower than the yield on Tenet’s newly priced notes, a source said.

Carnival flat

Carnival’s newly priced 11½% senior notes due 2023 had high-volume activity on Thursday. However, the notes largely fell flat.

The 11½% notes traded in a range of 97½ to 102½ on Thursday. However, the majority of prints were around their issue price of 99, a market source said.

The notes had more than $465 million in reported volume during the session.

While Carnival’s new notes were trading off the high-grade desks, they were priced on the high-yield desk and saw heavy demand from high-yield and distressed debt accounts.

Carnival priced an upsized $4 billion issue of the 11½% first-priority senior secured notes at 99 to yield 11.901% on Wednesday.

Pricing came tighter than coupon talk in the 12% area and on top of final price talk for a reoffer price of 98 to 99.

The senior notes offering was heard to be more than 4x oversubscribed.

The deal was part of a more than $6 billion capital raise which included a $1.75 billion offering of three-year convertible bonds and a $500 secondary offering of common stock.

Energy gains

The hard-hit energy sector saw some relief on Thursday as crude oil futures surged following a series of positive headlines.

The junk bonds of recent fallen angels Occidental Petroleum and subsidiary Western Midstream were on the rise as well.

Occidental Petroleum’s 3.5% senior notes due 2029 gained 2½ points to 48¾, according to a market source.

The 3½% senior notes due 2025 also gained 2½ points to close Thursday at 51.

Both issues had more than $15 million in reported volume during Thursday’s session.

Western Midstream saw its capital structure rise 5 to 8 points, a market source said.

The company’s recently priced 4.05% senior notes due 2030 rose 7 points to 53.

The recently priced 5¼% senior notes due 2050 gained 5 points to 47¼.

While the overall energy sector improved on Thursday, trading volume in energy names remained light with illiquidity continuing to plague the market.

WTI crude oil futures surged on Thursday, rising as much as 35% in intraday trading before settling at $25.32, an increase of $5.01, or 24.67%.

Crude oil futures spiked after President Donald Trump announced a pending deal between Russia and Saudi Arabia to curb oil production and end their price war.

The news came on top of headlines that China was increasing its purchases of oil to build its reserves.

Record $7.092 billion inflows

Market watchers had been expecting a record inflow for the week to Wednesday's close, and late Thursday that expectation was confirmed, sources said.

The dedicated high-yield bond funds had $7.092 billion of net inflows in the most recent week, according to Lipper US Fund Flows.

It was the biggest weekly inflow on record, according to market sources.

A trader, speaking on the telephone shortly after the New York close, took the news in stride, pointing out that over the previous five week period, amid historic volatility in the global capital markets, the dedicated junk funds saw $19.2 billion of net outflows, by far the greatest amount ever to exit the market over that span of time.

Part of the present week's historic inflows amounted to a not-too-surprising rebound, the trader said.

The Wednesday session, the final one in the record tally reported on Thursday afternoon, saw the combined funds posting $1.16 billion of net inflows, a market source said.

Actively managed high-yield funds had $1.55 billion of inflows on the day.

However high-yield ETFs sustained $392 million of outflows on Wednesday, the source said.

Indexes mixed

Indexes were mixed on Thursday.

The KDP High Yield Daily index dropped another 42 basis points to close Thursday at 60.52 with the yield now 8.28%.

The index was down 57 bps on Wednesday after gaining 50 bps on Tuesday and 61 bps on Monday.

The ICE BofAML US High Yield index took off 26.8 bps with year-to-date returns now negative 14.515%.

The index sank 112.4 bps on Wednesday after gaining 54.8 bps on Tuesday and 59 bps on Monday.

The CDX High Yield 30 index gained 2 bps to close Thursday at 90.55. The index plummeted 305 bps on Wednesday, was down 156 bps on Tuesday and gained 18 bps on Monday.

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