Occidental megadeal, Spectrum price; United Mileage holds premium; AA down again

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 26 – The domestic high-yield primary market continued to churn out the megadeals on Friday further solidifying June 2020 as the heaviest volume month on record for the junk bond market.

Fallen angel Occidental Petroleum Corp. priced its first junk bond deal, a massive $2 billion, three-tranche offering.

Elsewhere, Spectrum Brands Inc. priced a $300 million issue.

However, terms for ams AG's €1.3 billion equivalent two-part offering have yet to materialize.

There was one deal on the forward calendar at Friday’s close – Germany-based thyssenkrupp Elevator’s €4.05 billion equivalent five-part offering.

Meanwhile, the secondary space closed out a volatile week on soft footing.

While there was a weak tone to the market, volume was light with focus remaining on recent issues.

The travel and leisure sectors continued to take the brunt of investors’ flight from risk assets as a resurgence of Covid-19 cases cause some states to reintroduce restrictions.

While airlines were among those hardest hit, United Airlines Holdings, Inc. subsidiaries Mileage Plus Holdings LLC and Mileage Plus Intellectual Property Assets, Ltd.’s 6.5% senior secured amortizing notes due 2027 (Baa3//BBB-) were trading well above their issue price.

However, the sell-off in American Airlines, Inc.’s 11¾% senior secured notes due 2025 (Ba3/B+/BB-) continued on Friday.

Meredith Corp.’s newly priced 6½% senior secured notes due 2025 (Ba3/BB-) were flat.

OXY's junk debut

The news came in a reasonably steady stream for a summer Friday in the high-yield primary market, late in the record-setting month of June 2020.

Making its first pass at the junk new issue market since relinquishing its investment-grade ratings earlier in 2020, Occidental Petroleum priced $2 billion of senior bullet notes (Ba2/BB+/BB) in three tranches.

All three tranches priced at the wide ends of official talk.

Shortly after Friday's close a trader was seeing all three tranches – the 8% due 2025, the 8½% due 2027 and the 8 7/8% due 2030 – in the context of 98¼ to 99¼, give or take 25 cents, and recounted that all three issues were priced at par.

Spectrum’s $300 million, ams

Elsewhere, Spectrum Brands priced a $300 million issue of 10-year senior notes (Ba2/B/BB) at par to yield 5½%, in the middle of yield talk in the 5½% area, and tight to initial guidance in the 5 5/8% area.

Meanwhile, no terms materialized on Austrian sensor manufacturer ams AG's €1.3 billion equivalent two-part offering of five-year senior notes (Ba3/BB-/BB-) which includes a $500 million tranche that launched earlier in the week at 6¾%.

Order books closed Wednesday after final price talk circulated the market, but were reopened amid news reports that Austrian financial authorities launched a probe into share trading irregularities involving company management, a trader said on Friday morning.

Investors who put in for the bonds were given an opportunity to revisit their orders, a Europe-based market source said, adding that the market was expecting pricing to widen, in the week ahead, or the deal to be withdrawn (see related story in this issue).

The week ahead

One deal remained on the active forward calendar at the close of the week.

Germany-based elevator technology company thyssenkrupp is in the market with a €4.05 billion equivalent five-part deal on a roadshow set to run through Wednesday.

Two of the five tranches are dollar-denominated, and early guidance surfaced on both late in the past week: $1.4 billion (€1.25 billion equivalent) of senior secured notes due 2027 (B1/expected B/B+) are whispered in the mid-to-high 5% area, while $450 million (€400 million equivalent) of senior unsecured notes due 2028 (Caa1/expected CCC/CCC+) are whispered in the low-to-mid 8% area.

With turbulence taking hold of the capital markets – driven by concerns surrounding a major resurgence of Covid-19 cases in the United States and elsewhere – the robust pace of the primary, which saw June 2020 become the first month in the history of the market to top the $50 billion mark, might cool, a syndicate banker said on Friday.

The razor-sharp executions of early- and mid-June gave way to late-June executions which saw some deals coming in the middle of talk, or at the wide end of talk. And deals that were thought to have room to grow ended up clearing the market at their announced sizes.

Also, evidence surfaced that the massive flows of retail cash into high-yield bonds seen since late March were starting to thin, somewhat, the official added.

Mileage Plus trades up

While Mileage Plus’ 6.5% senior notes due 2027 were trading off their highs towards the market close, the notes were trading well above their discounted issue price.

The 6.5% notes were well supported in the morning with trades around par 5/8. While the notes came in as the session progressed, they were “still hanging in there,” a source said.

The notes were marked at par bid, par ¼ offered in the late afternoon.

The notes were holding even as the travel sector in general sold off on Friday.

The notes had better security than some of the other offerings from the sector with Mileage Plus, United Airlines’ rewards program, a high-margin business, a source said.

Covenants for the notes included a collections account which secured the notes on a first-priority basis where Mileage Plus will be required to deposit all revenue, the establishment of an escrow account with three months of interest, and a $2 billion liquidity requirement for United.

Mileage Plus priced an upsized $3.8 billion issue of the 6½% notes at 98.75 to yield 7% on Thursday.

The issue size increased from $3 billion.

The coupon and issue price came on top of talk.

American Airlines down again

While Mileage Plus’ new notes were trading with a healthy premium, American Airlines’ 11¾% senior notes due 2025 continued to crash in high-volume activity.

The notes traded down to 95 bid, 95¾ offered on Friday, a source said.

The closed Thursday on a 97-handle.

While the notes carried a hefty coupon and yield, some sources expressed surprise that the deal was able to clear the primary market.

“They pulled out all the stops,” a source said.

However, even after the multibillion-dollar capital raise that included $2.5 billion in senior notes, $1 billion in convertible notes and $1 billion in equity, the company remains in trouble.

“I’m not sure what they’re going to do, but they’re going to have to figure something out,” a source said.

American priced the 11¾% notes at 99 to yield 12.013% on Wednesday.

Meredith flat

Meredith’s 6½% senior notes due 2025 fell flat in the aftermarket.

The notes were marked at 99¾ bid, par ¼ offered late Friday afternoon.

Meredith priced a $300 million issue of the 6½% notes at par on Thursday.

The yield printed in the middle of yield talk in the 6½% area.

$712 million Thursday outflows

The dedicated high-yield bond funds had $712 million of net outflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained a chunky $742 million of outflows on the day.

Actively managed high-yield funds were modestly positive, with $30 million of inflows on Thursday, the source said.

News of Thursday's daily flows trailed a Thursday afternoon report that the combined funds had seen $88 million of net outflows in the week to the Wednesday, June 24 close, according to Lipper US Fund Flows.

It was the first negative weekly flow since the week to March 25, the source recounted, and added that during the ensuing 12 weeks the combined funds saw a gargantuan $47.7 billion of inflows during a period that encompassed the five biggest weekly inflows on record.

Indexes down

Indexes closed out a volatile week with losses.

The KDP High Yield Daily index dropped 17 points to close Friday at 65.12 with the yield now 6.5%.

The index dropped 34 points on Thursday, 25 points on Wednesday, 10 points on Tuesday and 11 points on Monday.

The index posted a cumulative loss of 97 points on the week.

The ICE BofAML US High Yield index dropped another 29.1 bps with the year-to-date return now negative 4.431%.

The index was down 33.5 bps on Thursday and 60.4 bps on Wednesday, gained 6 bps on Tuesday and shaved off 4.5 bps on Monday.

The index posted a cumulative loss of 121.5 bps on the week.

The CDX High Yield 30 index dropped 100 bps to close Friday at 98.89.

The index was up 61 bps on Thursday, dove 102 bps on Wednesday, was flat on Tuesday and gained 5 bps on Monday.

The index posted a cumulative loss of 136 bps on the week.

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