Spectrum prices; Comstock gains; Simmons Foods, Avis improve; Carnival above water

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 19 – The domestic high-yield primary market saw one deal price on Friday.

Spectrum Brands Inc. priced an upsized $500 million issue of 3 7/8% 10-year senior notes (B2/B/BB).

While there are whispers of several deals in the pipeline, none have been officially announced and the active calendar was empty heading into the Feb. 22 week.

Meanwhile, the secondary space started the day strong with the overall space better bid.

However, the strength dissipated into the afternoon with the market capping a sideways week largely unchanged, sources said.

New paper continued to dominate the tape with several recent issues improving.

Comstock Resources, Inc.’s 6¾% senior notes due 2029 (Caa1/B/B+) continued to gain with the notes rising to a 102-handle after a strong break the previous session.

Avis Budget Car Rental, LLC’s 5 3/8% senior notes due 2029 (B3/B) continued to gain traction after a lackluster start in the aftermarket.

Simmons Foods Inc.’s 4 5/8% senior secured second-lien notes due 2029 (B3/B) also continued to gain momentum in active trading.

Carnival Corp.’s 5¾% senior notes due 2027 (B2/B+) were markedly improved during Friday’s session with the notes closing the day above par after struggling below since pricing.

Friday’s primary

Spectrum Brands priced Friday's sole deal, an upsized $500 million issue (from $400 million) of 3 7/8% 10-year senior notes (B2/B/BB) that came at par, at the tight end of talk.

That brought the quiet week of Feb. 15 to a close having seen just $3.45 billion of issuance, well off the torrid $12.4 billion per week pace of the primary market through the first six weeks of 2021.

The reason, sources say, is an earnings blackout, keeping potential issuers sidelined, as they must post fresh financial numbers prior to accessing the market.

The final week of February is set to get underway with an empty active deal calendar.

There are deals primed and ready, according to market sources who concede that the same names have been circulating since early in the month.

Those include American Tire Distributors and Vivint, which have already taken the temperature of the market by means of running non-deal roadshows, and Macy's, Inc.

Comstock gains

Comstock’s 6¾% senior notes due 2029 continued to gain in high-volume activity on Friday following a strong break the previous session.

The notes rose to a 102-handle and were changing hands in the 102½ to 102 7/8 context heading into the market close, a source said.

There was more than $88 million in reported volume during Friday’s session.

The notes had a strong break and traded up to 101¾ bid, 102 offered after freeing for trade on Thursday.

The oil and natural gas exploration and production company’s notes were putting in a strong performance despite crude oil futures dropping below the $60 threshold on Friday.

WTI crude oil futures settled at $59.24, a decrease of $1.28, or 2.12% on Friday.

“It’s about the yield,” a source said.

Comstock also recently came out with positive earnings.

Comstock priced an upsized $1 billion, from $750 million, issue of the 6¾% notes at par in a Thursday drive-by.

Pricing came at the tight end of the 6¾% to 6 7/8% yield talk.

Improved

Several recent deals continued to improve on Friday.

After an uninspiring start, Avis’ 5 3/8% senior notes due 2029 continued to improve in active trading.

The notes were up ¼ point to change hands in the par 5/8 to par 7/8 context heading into the market close.

The notes remained active with about $23 million in reported volume heading into the market close.

The notes were stuck at par for most of Thursday’s session.

However, they gained traction heading into the close and ended the previous session in the par 3/8 to par 5/8 context.

Simmons Foods’ 4 5/8% senior secured second-lien notes due 2029 also continued to gain in active trading.

The notes were up about ½ point and stood poised to close Friday at 101½ bid, 101¾ offered, according to a market source.

There was more than $22 million in reported volume.

The notes have performed well since breaking for trade on Wednesday and rose to a 101-handle in active trading on Thursday.

The notes offered a decent yield for a single-B credit and the company is from a sector that’s considered a safe haven for investors, a source previously said.

Carnival above water

Carnival’s recently priced 5¾% senior notes due 2027 were markedly improved on Friday with the notes topping par for the first time since breaking for trade.

The 5¾% notes traded in a range of par to par 5/8 during Friday’s session. They were changing hands in the par ½ to par 5/8 context heading into the market close.

It was the highest level for the notes since the $3.5 billion issue, which priced at par, broke for trade on Feb. 10.

The notes remained active with more than $56 million in reported volume during Friday’s session.

The notes climbed to par on Thursday after trading as low as 99¼ last Friday.

The notes have been under pressure since breaking for trade with hedge accounts leaning into the notes, a source previously said.

Thursday inflows

The dedicated high-yield bond funds saw moderate net inflows of $133 million on Thursday, according to a market source.

Actively managed high-yield funds saw $115 million of inflows on the day.

High-yield ETFs saw $18 million of inflows on Thursday, the source said.

News of Thursday's daily flows followed a Thursday report that the combined funds sustained $1.347 billion of net outflows in the week to Wednesday's close, according to the Refinitiv Lipper Fund Flow Report Newsline.

That left the dedicated high-yield bond funds with year-to-date cash flows of negative-$2.4 billion (high-yield ETFs are negative-$2.6 billion, year-to-date), according to the market source.

As yields plummet, retail cash is rolling out of high yield, and perhaps rolling into stocks or somewhere else, a bond trader suggested on Friday.

People are concerned about inflation, in light of the ultra-low coupons that the better-quality credits have been seeing, the trader said.

Some maintain that the huge upward move in the 10-year Treasury yield (around 40 basis points since the beginning of the year, and around 10 points in the most recent week) indicates a strengthening economy.

However, others say it’s an indication that costs, which are not necessarily reflected in the Consumer Price Index, have climbed and are continuing to climb.

“The price of lumber has tripled,” a trader said.

“The price of copper is off the charts.

“Food and housing prices keep going up.

“Stuff you need keeps going up.

“But you can still get a good deal on a flat-screen TV.”

In a Friday note to its clients, JPMorgan reckoned that global stimulus comes to around $30 trillion equivalent., according to a market source.

“How can you have that much stimulus without impacting prices?” the trader asked rhetorically.

Indexes mixed

Indexes closed the week mixed.

The KDP High Yield Daily index shaved off 1 basis point to close Friday at 69.88; however, the yield of 3.77% was flush with Thursday’s close.

The index was down 1 bp on Thursday after gaining 4 bps on Wednesday and 1 bp on Tuesday.

The index posted a cumulative gain of 3 bps on the week.

The ICE BofAML US High Yield index gained 2.9 bps with the year-to-date return now 1.337%.

The index shaved off 5.9 bps on Thursday and 4.3 bps on Wednesday after gaining 2.5 bps on Tuesday.

The index posted a cumulative loss of 4.8 bps on the week.

The CDX High Yield 30 index dropped 11 bps to close Friday at 109. The index was down 22 points on Thursday, 5 bps on Wednesday and 8 bps on Tuesday.

The index posted a cumulative loss of 46 bps on the week.

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