ION on tap; junk secondary weaker; Oxford outperforms; Medline gains; Netflix active

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 25 – The domestic high-yield primary market was quiet on Tuesday on the eve of the Federal Reserve’s Wednesday announcement.

However, the forward calendar continued to grow with ION Analytics in the market with an $850 million equivalent of eight-year senior secured notes (expected ratings: B2/B).

While quiet on Tuesday, the new issue market is expected to see an active close to the week with Jacobs Entertainment Inc. set to price its $500 million offering of seven-year senior notes on Wednesday and six other deals in the offing.

Meanwhile, volatility continued in the secondary space with the cash bond market down about ¼ point as selling in equities resumed.

While equity markets once again logged steep losses on Tuesday, the high-yield market continued to fare relatively well.

However, all eyes will be on Federal Reserve chair Jerome Powell’s press conference on Wednesday for insight into the future rate hike schedule.

While primary market activity has slowed, recent deals continued to hold in the secondary.

Oxford Finance LLC’s 6 3/8% senior notes due 2027 (Ba3/B/BB-), the sole deal to price during Monday’s session, outperformed the market with the notes trading on a 102-handle.

The secondary space for existing deals also saw active trading on Tuesday as market players reposition themselves.

Medline Industries’ two tranches of senior notes were in focus with the tranches making nominal gains although they remained deep under water.

Netflix Inc.’s senior notes remained active following last week’s disappointing earnings report.

The calendar

The only Tuesday news in the dollar-denominated primary market came from Acuris Finance US, Inc. and Acuris Finance Sarl, which do business as ION Analytics.

They intend to place $850 million equivalent of eight-year senior secured notes (expected ratings B2/B).

The deal is coming in tranches of dollar-denominated notes with initial guidance in the low-to-mid 6% area, and euro-denominated notes with initial guidance in the mid-to-high 4% area.

It was set to kick off on a Tuesday conference call with investors, and is expected to price Friday.

The Tuesday session, which took place against a backdrop of ongoing volatility in the U.S. stock markets, produced very little news on a $5.75 billion active deal calendar that is expected to clear ahead of Friday's close.

Jacobs Entertainment is on track to price Wednesday, a trader said.

Pending official talk the deal is in the market with initial guidance in the high 6% area to 7%, and is heard to be playing to an order book that is deal-size or better, sources say.

The order book for the biggest deal on the present calendar, the athenahealth (Minerva Merger Sub, Inc.) $2.5 billion single-tranche offering of eight-year senior notes (Caa2/CCC/CCC+), is heard to be at deal size, a market source said on Tuesday afternoon.

The deal is in the market with initial talk in the low-to-mid 6% area, and is expected to be in roadshow mode through Wednesday.

Meanwhile the market has been anticipating that Bausch Health Cos. Inc. will show up with a $1 billion offering of secured notes, with proceeds to refinance debt.

Dealers telegraphed the deal last week ahead of the launch of Bausch's $2.5 billion seven-year senior secured term loan.

Due to the fact that Bausch bonds are actively traded, dealers would probably prefer a capital markets backdrop that is just a little less volatile than it presently is, a trader said.

Initial price discussions on the notes was in the mid-5% area, a market source said.

Finally, the active forward calendar is a novel one in that it is festooned with no fewer than five debut issuers.

Covis Pharma (Covis Finco Sarl), Embecta Corp., Eco Material Technologies, Inc., Ero Copper Corp., and the above-mentioned ION Analytics are all making their debuts in the high-yield new issue market.

Oxford outperforms

Oxford Finance’s 6 3/8% senior notes due 2027 outperformed the market with the notes trading up to a 102-handle.

The 6 3/8% notes were marked at 102 bid, 102½ offered early in the session and were wrapped around 102 heading into the close, sources said.

There was about $22 million in reported volume.

Oxford priced a $400 million issue of the 6 3/8% notes at par on Monday.

The yield printed at the tight end of yield talk in the 6½% area.

Medline in focus

Medline’s two tranches of senior notes were in focus on Tuesday with the notes making nominal gains although they remained underwater.

Medline’s 5¼% senior notes due 2029 (Caa1/B-/B-) rose about ½ point. They were changing hands in the 98½ to 98¾ context late in the trading day, according to a market source.

There was about $28 million in reported volume.

Medline’s 3 7/8% senior secured notes due 2029 (B1/B+/BB-) rose about ¼ point to trade in the 96 5/8 to 96¾ context heading into the market close.

There was about $29 million in reported volume.

In the largest LBO financing deal since the global financial crisis, Medline priced a $4.5 billion tranche of the 3 7/8% secured notes and a $2.5 billion tranche of the 5¼% notes at par in September 2021.

The secured notes have traded below par since shortly after pricing.

However, they remained on a 99-handle until January with the rate-sensitive names taking a further hit as the market priced in more Federal Reserve rate increases than previously expected.

The 5¼% notes closed 2021 on a 101-handle. However, the notes have been on a downward trend over the past three weeks alongside the broader market.

Netflix active

Netflix’s senior notes remained active on Tuesday on the heels of last week’s disappointing earnings report.

Netflix’s 4 3/8% senior notes due 2026 were little changed in the high-volume activity.

They continued to trade on a 108-handle with the notes in the 108 3/8 to 108 5/8 context heading into the close.

There was $20 million in reported volume.

Netflix’s 5 7/8% senior notes due 2028 were slightly softer. The 5 7/8% notes were off about ¼ point to trade in the 116 7/8 to 117 1/8 context heading into the close.

There was $18 million in reported volume.

The notes have shaved off about ½ point since Netflix reported earnings after the market close on Thursday.

Netflix reported slowing subscriber growth which threw the company’s stock into a tailspin and dragged down broader equity markets.

Netflix stock has dropped 27% since last Thursday. However, the company’s senior notes have held up amid the sell-off in stock.

Big Monday outflows

The dedicated high-yield bond funds sustained $1.452 billion of daily net outflows on Monday, according to a market source.

High-yield ETFs saw $997 million of outflows on the day.

Actively managed high-yield funds sustained $455 million of outflows on Monday, the source said.

The combined funds are tracking $775 million of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Although outflows continue to be attention-getting they have thus far not resulted in forced selling, a trader said on Tuesday, adding that the funds have sufficient cash- and cash-equivalent balances to meet present redemptions.

Indexes

The KDP High Yield Daily index was down 5 points to close the day at 64.27 with the yield 4.58%.

The index sank 29 points on Monday.

The CDX High Yield 30 index fell 32 basis points to close the day at 107.20. The index closed Monday up 19 bps.

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