High yield: Allied Universal, Vistra price; Community Health up; Diamond Sports gains again

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 5 – Investors continued to prefer yield to security in Junkbondland, evidenced in the pricing of the megadeal from Allied Universal on Wednesday in the primary.

Additionally, the primary posted a notable drive-by $1 billion-plus deal from Vistra Operations LLC.

Meanwhile, the secondary space was mixed on Wednesday with pockets of strength and pockets of weakness as investors digest the onslaught of earnings from high-yield issuers, sources said.

CHS/Community Health Systems Inc.’s recently priced 6 1/8% junior priority secured notes due 2030 (Caa3//CC) continued to gain momentum in active trading on Wednesday.

Outside of recent issues, Diamond Sports Group LLC’s secured and unsecured notes rocketed higher in active trading following parent company Sinclair Broadcast Group Inc.’s earnings report.

However, Rayonier Advanced Materials Inc.’s 5½% senior notes due 2024 were trading off following the chemical company’s earnings.

Billions

Allied Universal crossed the finish line on Wednesday with a $2.96 billion three-part megadeal backing its acquisition of London-based security services provider G4S.

Issuing via several co-issuers, the deal included $2 billion of 4 5/8% seven-year secured paper (B2/B) in two tranches, both of which priced at par, on top of final talk, and $1.285 billion of 6% eight-year senior unsecured notes (Caa1/CCC+) that also priced at par, also on top of final talk.

Demand for the unsecured tranche exceeded that of the secured paper, sources said.

In the secondary market, late Wednesday, the secured notes in both tranches were hanging in at par bid, par ¼ offered, while the unsecured notes were trading better at 101 1/8 bid, 101 5/8 offered, a trader said.

In drive-by action Vistra Operations LLC priced $1.25 billion of 4 3/8% eight-year senior notes (Ba2/BB) at par, at the tight end talk.

The deal was heard to be playing to $2.9 billion of orders a trader said.

Community Health gains steam

CHS’ 6 1/8% junior priority secured notes due 2030 were gaining momentum in active trading on Wednesday, following a strong break the previous session.

The 6 1/8% notes were up about ¼ point to par 5/8 bid, par 7/8 offered, a source said.

There was $56 million in reported volume heading into the market close.

The notes had a strong break and were marked at par ½ bid, par ¾ offered shortly after pricing on Tuesday.

CHS priced a $1.44 billion issue of the 6 1/8% notes in a Tuesday drive-by.

The yield printed at the tight end of yield talk in the 6¼% area.

The deal was at heard to have played to an order book of at least $2.5 billion.

Diamond Sports rockets higher

Diamond Sports’ secured and unsecured tranches rocketed higher in heavy volume on Wednesday following parent company Sinclair’s earnings report.

The 6 5/8% senior notes due 2027 rose 4¾ points to close the day at 74¾.

The 5 3/8% senior secured notes due 2026 rose more than 3¾ points to close the day at 55¼.

Reported volume was more than $26 million across both tranches.

The notes were the major gainers of Wednesday’s session, a source said.

The company’s secured and unsecured tranches have made large gains since late April when whispers circulated that Sinclair was talking with investors about a potential debt deal, a source said.

The upward momentum was further fueled on Wednesday by Sinclair’s earnings report.

While the net leverage of the sports unit was 9.3x during the first quarter, the company announced on its earnings conference call that it has enough cash to meet its debt obligation, a source said.

The company also affirmed that it is in active talks with investors to help manage Diamond Sports’ debt load.

Rayonier trades off

Rayonier’s 5½% senior notes due 2024 were under pressure following the chemical company’s earnings report.

The notes dropped about 2 points to 95½ in active trading, a source said.

The company’s stock also tanked during Wednesday’s session, closing the day at $6.99, a decrease of 23.27%.

While the company slightly missed analyst expectations in its earnings, sources attributed the sell-off in the company’s stock and bonds to the sale of its lumber business.

Rayonier’s forest products division had the highest growth out of its business units in the first quarter, due to skyrocketing lumber costs.

However, the company is selling its lumber and newsprint assets for $214 million with proceeds to be used to reduce debt and reinvest in its high purity cellulose business, the company said in a news release.

$555 million Tuesday outflows

The dedicated high-yield bond funds sustained $555 million of net daily outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $630 million of outflows on the day.

Actively managed high-yield funds were positive on Tuesday, posting $75 million of inflows on the day, the source said.

Indexes mixed

Indexes were again mixed on Wednesday.

The KDP High Yield Daily index rose 4 points to close the day at 69.7 with the yield now 3.88%.

The index was up 1 point on Tuesday and 3 points on Monday.

The CDX High Yield 30 index dropped 2 bps to close Wednesday at 109.75.

The index was down 15 bps on Tuesday after gaining 5 bps on Monday.

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