CDW, Hilton price; Change Healthcare adds on; Six Flags, Cleveland-Cliffs soar

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 16 – The domestic high-yield primary market remained active on Thursday with three drive-by issuers conducting razor-sharp executions.

CDW Corp. priced an upsized $600 million issue of five-year senior notes (Ba2/BB-).

Hilton Hotels & Resorts doubled the size of its sale of senior notes (Ba2/BB) to $1 billion from $500 million with an additional tranche added.

And Change Healthcare Holdings, LLC priced an upsized $325 million add-on to their 5¾% senior notes due March 1, 2025 (Caa1/B-).

The European high-yield primary market also reopened with Verisure Holding AB pricing an upsized €200 million issue of five-year senior secured floating-rate notes (B1/existing B)

Meanwhile, the secondary space was soft on Thursday with the cash market down, in general, ¼ point, a market source said.

However, new paper continued to soar in the aftermarket, despite deals coming with increasingly tighter terms.

“That’s an indication of a starved investor base,” a source said.

Six Flags Theme Parks Inc.’s 7% senior notes due 2025 (Ba2/BB-) and Cleveland-Cliffs Inc.’s 9 7/8% senior secured notes due 2025 (Ba3/B+) were trading with steep premiums to their issue price in high-volume activity.

However, Spirit AeroSystems, Inc.’s 7½% senior notes due 2025 (Ba2/BB-) continued to lose ground after a strong start in the secondary space.

While new issues remained in focus and continued to perform well, missed coupon payments continued to pile up with Neiman Marcus Group LLC, J.C. Penney Co., Inc., and Diamond Offshore Drilling, Inc. all on the brink of default, a source said.

Hertz Corp.’s junk bonds dropped double digits as bankruptcy rumors circulated the market.

Despite the grim outlook for several high-yield issuers, investors continued to pour money into the space with inflows to high-yield mutual and exchange-traded funds again setting records.

Dedicated funds saw inflows of $7.663 billion for the week to Wednesday’s close, according to the Refinitiv Lipper Fund Flow report.

The previous largest inflow on record was about two weeks ago when $7.092 billion entered the space.

A blowout market

The high-yield new issue market was on the slab just two short weeks ago – closed for most of March due to volatility in the global capital markets, set in train by coronavirus.

However, the Thursday session provided ample evidence that its near-miraculous resuscitation is now complete.

Since reopening on the heels of the Federal Reserve Bank's April 9 announcement of a $750 billion special purpose vehicle which, under certain circumstances, can be used to acquire junk-rated corporate bonds (Ba3/BB- or above), the market has been on fire, sources say.

Razor-tight executions, with drive-by issuers upsizing deals and pricing them tight to, or inside of, price talk have become the norm, a trader said on Thursday.

Meanwhile, the high-yield asset class is attracting retail cash in record volume.

The dedicated high-yield bond funds had $7.663 billion of net inflows in the week to Wednesday's close, according to Lipper US Fund Flows.

That smashes the previous record, $7.092 billion, seen just two weeks ago, according to a market source.

And almost all of the recent new deals have been blowouts, and the bonds are being chased in the secondary market, the trader said.

Thursday action

In Thursday drive-by action, CDW Corp. priced an upsized $600 million issue of five-year senior notes (Ba2/BB-) at par to yield 4 1/8%.

The issue size increased from $500 million.

The yield printed at the tight end of yield talk in the 4¼% area.

The deal was seven-times oversubscribed, according to the trader who had the new CDW 4 1/8% notes going out at 101¼ bid, 101¾ offered.

Hilton Hotels & Resorts pushed the maturity envelope with what sources around the market characterized as a blowout deal.

Hilton doubled the size of its sale of senior notes (Ba2/BB) to $1 billion from $500 million with the addition of a $500 million tranche of eight-year notes.

The sale, which came in a drive-by, included $500 million of five-year notes which priced at par to yield 5 3/8%. The yield printed at the tight end of yield talk in the 5½% area.

Hilton also sold $500 million of eight-year notes at par to yield 5¾%.

The latter tranche – the eight-year notes – represents the first eight-year paper to clear the market since Scientific Applications International Corp. priced a $400 million issue of 4 7/8% senior notes due April 1, 2028 (B1/BB-) on March 4.

Also, the Thursday primary market saw action from the higher beta segment of the asset class.

Change Healthcare Holdings priced a $325 million add-on to their 5¾% senior notes due March 1, 2025 (Caa1/B-) at par.

The issue size increased from $200 million.

The issue price came at the rich end of the 99.5 to par price talk.

Europe reopens

The European high-yield primary, which spent a much longer period on ice than did its U.S. counterpart, reopened Thursday as Sweden-based security alarms producer Verisure Holding AB priced an upsized €200 million issue of five-year senior secured floating-rate notes (B1/existing B) with a 500 basis points spread to Euribor at 99.50.

The issue size increased from €150 million.

The spread came on top of spread talk. The issue price came at the rich end of the 99 to 99.5 price talk.

Prior to Verisure, the most recent euro-denominated deal to clear came all the way back on Feb. 20 when Catalent, Inc. priced €825 million of Catalent Pharma Solutions, Inc. 2 3/8% unsecured notes due 2028, a London-based syndicate banker said.

Six Flags in demand

Six Flags’ 7% senior notes due 2025 traded with a steep premium on Thursday with the strong demand seen during bookbuilding following the notes into the secondary space.

The notes stood poised to close the day at 104 bid, 104½ offered with more than $126 million in reported volume, sources said.

The 7% notes were continuing to gain after a strong break that saw them trade up to 102 soon after pricing on Wednesday.

Six Flags priced an upsized $725 million issue of the 7% notes at par in a Wednesday drive-by.

The yield printed at the tight end of the 7% to 7¼% yield talk. Initial talk was in the low 8% area.

The issue size increased from $665 million.

The deal was heavily oversubscribed with books in excess of $6.5 billion, a market source said.

The deal was heard to have at least $1.5 billion of reverse demand.

Cleveland-Cliffs trades up

Cleveland-Cliffs’ 9 7/8% senior notes due 2025 were also trading well above their issue price in high-volume activity.

The notes, which priced with a steep discount, rose 4 points to close out the day at 98½, a source said.

The yield on the notes was still double digits at 10¼%.

The bonds saw more than $74.5 million in reported volume.

Cleveland-Cliffs priced a $400 million issue of the 9 7/8% senior secured notes at 94.5 to yield 11.243%.

The deal had to get “pushed through the door,” a source said.

However, based on their secondary market performance, the Ohio-based iron ore mining company could have gotten away with tighter pricing, the source said.

Spirit AeroSystems weakens

Spirit AeroSystems’ recently priced 7½% senior notes due 2025 continued to lose steam in active trading on Thursday.

The notes were marked at par ¼ bid, par ½ offered heading into the close.

The bonds had more than $41 million in reported volume during the session.

The 7½% notes saw a strong break, trading up to 103 shortly after hitting the aftermarket.

However, the notes have steadily grown weaker.

Spirit AeroSystems priced an upsized $1.2 billion issue of the 7½% notes at par in a Tuesday drive-by.

Hertz drops

Hertz’s junk bonds were under pressure on Thursday as bankruptcy rumors circulated the market.

While volume was light, the car rental company’s 6¼% senior notes due 2022 traded off 16 5/8 points to close the day at 50, a market source said.

The 5½% senior notes due 2024 were down 10½ points to 41½.

The 7 1/8% senior notes due 2026 also dropped 10 points to 41½.

The company is facing a budget shortfall of $1.5 billion in the next few months and is seeking government aid to stave off bankruptcy, multiple news agencies reported.

Indexes mixed

Indexes were again mixed on Thursday.

The KDP High Yield Daily index dropped 15 bps to close Thursday at 64 with the yield now 7.24%.

The index was down 14 bps on Wednesday, gained 66 bps on Tuesday and dropped 11 bps on Monday.

The ICE BofAML US High Yield index gained 7 bps with year-to-date returns now negative 9.061%.

The index dropped 48.9 bps on Wednesday after gaining 91.4 bps on Tuesday and 120.7 bps on Monday.

The CDX High Yield 30 index dropped 12 bps to close Thursday at 95.53. The index sank 201 bps on Wednesday, 11 bps on Tuesday and 109 bps on Monday.

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