Cetera prices; Forward Air, airlines, Ardagh under pressure; junk funds lose $942 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 26 – The domestic high-yield primary market cleared one deal on Thursday, leaving one remaining on the forward calendar although its future is unclear.

Cetera Financial Group Inc. priced Thursday’s sole deal, a $700 million issue of Aretec Escrow Issuer 2 Inc. 10% senior secured notes due Aug. 15, 2030 (B2/B) that priced at par.

Meanwhile, there have been no updates on the Global Aircraft Leasing Co., Ltd. (GALC) and Global Sea Containers II Ltd. $1.95 billion offering of five-year senior PIK toggle notes (Ba2//BB-), which has been in the market for more than two weeks.

With the deal heard to have experienced pushback, some speculate it has been shelved.

The secondary space shook off early losses to close the day largely unchanged with macro data continuing to paint an ambiguous picture of the future of rates.

While the Gross Domestic Product report blew past expectations with the consumer-powered economy growing at the fastest clip since 2021, the report also contained a lower-than-anticipated quarterly personal consumption expenditure print.

The monthly personal consumption expenditure report, slated for release on Friday, is expected to spur more volatility in a market that has drastically revised its rate expectations over the past month.

However, lower Treasury yields on Thursday helped firm up the secondary space with the 10-year Treasury yield closing the day down 11.5 bps at 4.847%.

While the broader market remained firmly focused on the macro trade, topical and earnings-related news were the drivers of trading activity on Thursday.

Forward Air Corp.’s 9½% senior secured notes due 2031 were lower in heavy volume after the company announced it may terminate its acquisition of Omni Newco LLC, which proceeds from the sale of the notes was to support.

Airlines were also taking a hit as lackluster earnings continued to drag down the sector.

Hawaiian Airlines’ 5¾% first-lien senior secured notes due 2026 and Spirit Airlines, Inc.’s 8% senior secured first-lien notes due 2025, issued by Spirit Loyalty Cayman Ltd./Spirit IP Cayman Ltd., were under pressure with the airlines the latest to disappoint with earnings.

However, Ardagh Holdings USA Inc.’s senior notes claimed the title of the largest loser of Thursday’s session with its secured notes down 2 points and its unsecured notes plunging 7 points post-earnings.

Meanwhile, high-yield mutual funds and exchange-traded funds continued to see outflows, although the magnitude of the exodus showed signs of waning.

Funds saw $942 million leave the space in the week through Wednesday’s close after three consecutive weeks of multi-billion-dollar outflows, a market source said.

Cetera prices

Cetera Financial Group priced Thursday’s sole deal, a $700 million issue of Aretec 10% senior secured notes due Aug. 15, 2030 (B2/B) that priced at par.

The 10% yield printed in the middle of yield talk in the 10% area and toward the wide end of initial guidance in the high-9% to 10% area.

At the time price talk circulated on Thursday morning, the deal was playing to $1.15 billion of demand, a trader said.

Meanwhile, there have been no updates on the GALC and Global Sea Containers II $1.95 billion offering of five-year senior PIK toggle notes (Ba2//BB-) since the beginning of the week, leaving some market-watchers wondering if the deal has been shelved.

The deal ran an investor roadshow that started more than two weeks ago.

Early in the present week the offer was heard to be in limbo after the company rejected covenant changes demanded by an investor representing an anchor order, which would have taken the book above deal-size, sources said.

The co-issuers are in the market in order to raise cash to pay off $1.91 billion of GALC 6½% senior PIK toggle notes due September 2024.

GALC made three PIK payments on those 6½% notes during the height of the Covid shutdown, and investors are keen to incentivize the company to make interest payments on the new notes in cash, sources said.

The issuers addressed that concern in the new deal’s structure with a novel 200 basis points PIK step-up (the customary PIK step-up has been 75 bps).

However, investors want additional guarantees and pledges of assets, sources said.

Forward Air under pressure

Forward Air’s 9½% senior secured notes due 2031 were under pressure on Thursday after the company announced that it may terminate its acquisition of Omni Newco.

The 9½% notes fell 1 to 1½ points in heavy volume to sink back to their discounted issue price.

The notes closed Thursday in the 97 7/8 to 98 1/8 context, a source said.

There was $43 million in reported volume.

The notes were under pressure after the company announced that it did not believe Omni Newco had complied with the terms of its merger agreement and Forward Air was considering canceling the transaction.

Forward Air priced a $725 million issue of the 9½% notes at 98 in late September with proceeds to be used to support the acquisition of Omni.

Airlines earnings tank

Lackluster earnings continued to pour in from the travel sector with Spirit Airlines and Hawaiian Airlines the latest to disappoint.

Hawaiian Air’s 5¾% first-lien senior secured notes due 2026 were under pressure following earnings with the Maui wildfires contributing to the revenue miss.

The 5¾% notes sank about 2 points to a 78-handle on the results.

They were trading in the 78 to 78½ context heading into the market close, a source said.

The yield rose to about 17 7/8%.

There was $24 million in reported volume.

Spirit Air’s 8% senior secured first-lien notes due 2025 dropped 3 points after reporting a slowdown in demand and price pressures.

The 8% notes closed the day wrapped around 89 with the yield rising to 14¾%.

There was $16 million in reported volume.

Airlines have largely disappointed with their results with a slowdown in demand flagged across the industry.

Discount travel offers and incentives have also started to bite with Spirit, in particular, taking a hit from discounted ticket prices.

Ardagh crumbles

While airlines were under pressure following lackluster results, Ardagh’s senior notes crumbled following earnings.

Ardagh’s 5¼% senior secured notes due 2025 (B1/BB-) fell 2 points to close the day wrapped around 94.

The yield rose to 9½%.

The notes were trading with an 8% yield heading into earnings, a source said.

There was $19 million in reported volume.

The 5¼% senior notes due 2027 (Caa1/B-) plunged 7 points to break below a 70 handle.

They were trading in the 69¾ to 70 context heading into the market close with the yield rising to 16%.

There was $5 million in reported volume.

The notes were trading on a 77-handle heading into earnings.

While the packaging company reported an increase in revenue, its EBITDA sank 15% year-over-year, a source said.

Indexes

The KDP High Yield Daily index inched up 1 bp to close Thursday at 47.95 with the yield now 8.3%.

The index was down 13 bps on Wednesday and 35 bps on Tuesday after gaining 13 bps on Monday.

The ICE BofAML US High Yield index was down 11.4 bps with the year-to-date return now 4.29%.

The index shed 15.2 bps on Wednesday after gaining 37.6 bps on Tuesday and 23.2 bps on Monday.

The CDX High Yield 30 index shed 4 bps to close Thursday at 99.11.

The index fell 58 bps on Wednesday after gaining 42 bps on Tuesday and 31 bps on Monday.

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