KeHE joins junk calendar; Tallgrass submerged; Acrisure stays up; Spirit tailspin continues

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 17 – While the dollar-denominated new issue market hit the snooze bar hard on Wednesday, the euro market turned out €1 billion of new junk bonds.

In the United States, though, KeHE Distributors, LLC started marketing a new deal and joined the calendar.

Meanwhile, it was a heavy day in the secondary space with a hotter-than-anticipated retail sales report sparking a risk-off sentiment in the market.

The cash bond market was off ¼ to 3/8 point on Wednesday as Treasury yields climbed double digits on the front end of the curve.

The two-year Treasury yield closed Wednesday up 12.6 basis points at 4.35% while the 10-year Treasury yield was up a much more modest 3.4 bps to close the day at 4.1%.

The market continued to dial back its rate-cut expectations with odds falling for rate cuts to begin at the March meeting, a source said.

New paper and topical news continued to move the market on Wednesday with the paper to price during Tuesday’s session following different trajectories.

Tallgrass Energy Partners, LP/Tallgrass Energy Finance Corp.’s new 7 3/8% senior notes due 2029 (B1/BB-/BB-) fell below par on a heavy day for the market.

However, Acrisure, LLC/Acrisure Finance, Inc.’s 8¼% senior notes due 2029 (Caa2/CCC+) held on to the gains made on the break with the notes largely unchanged in heavy volume.

Outside of new and recent issues, Spirit Airlines Inc.’s 8% senior secured notes due 2025 (B2) continued their tailspin on Wednesday with the notes sinking another 8 to 9 points after their double-digit decline the previous session.

Europe

In the primary market in Europe, Rome-based infrastructure group Mundys SpA priced its inaugural issue of sustainability-linked notes: €750 million of 4¾% five-year senior notes (expected Ba2/BB+/BB) which priced at 99.457 to yield 4 7/8%, at the tight to yield talk.

The deal was playing to €1.8 billion of demand at 4 7/8%, a source said.

Meantime Germany-based supplier of tissue products, Wepa Hygieneprodukte GmbH priced a €250 million issue of 5 5/8% seven-year senior secured notes (B1/B+) at 99.288 to yield 5¾%, also at the tight end of talk.

With hygiene products being an easy sell in a pandemic Wepa has seen its EBITDA increase, enabling it to bring about a reduction in leverage, a London-based high-yield market source noted, adding that those positive metrics allowed Wepa to price its new deal inside of initial talk in the 6% area.

The sole news nugget in the dollar-denominated market came in the form of a roadshow start by specialty food distributor KeHE Distributors, LLC which began marketing a $750 million offering of KeHE Finance Corp./NextWave Distribution, Inc. five-year senior secured notes (B3/B) on Wednesday.

Initial guidance is in the low-9% area, according to a bond trader who added that upon its announcement the deal was half spoken for in reverse inquiry.

The offer is expected to price on Tuesday.

Along with the deal launch came a Moody's Investors Service downgrade of KeHE Distributors, LLC's corporate family rating to B1 from Ba3, along with the B3 rating to notes. The rating outlook was changed to negative from stable.

Tallgrass below par

In the secondary, Tallgrass Energy’s newly priced 7 3/8% senior notes due 2029 were off about ¼ point on Wednesday after a flat break with the notes closing the day below par.

They traded in a tight range of 99 5/8 to 99 7/8 throughout the session, according to a market source.

The notes were moving lower alongside the broader market with the tight pricing leaving little room for upside movement.

Tallgrass Energy priced an upsized $800 million, from $700 million, issue of the 7 3/8% notes at par in a Tuesday drive-by.

The yield printed at the tight end of the 7 3/8% to 7½% yield talk, which was revised from earlier talk of 7½% to 7 5/8%.

The deal was heard to have played to over $2 billion of demand, a trader said.

Acrisure holds premium

Acrisure’s 8¼% senior notes due 2029 held on to the gains made on the break despite a heavy day for the market.

The 8¼% notes were largely unchanged on the day with the notes continuing to trade in the par ¼ to par ½ context, a source said.

Acrisure priced a $925 million issue of the 8¼% notes at par in a Tuesday drive-by.

The yield printed at the tight end of the 8¼% to 8½% yield talk.

The deal was heard to be more than two-times oversubscribed.

Spirit’s nosedive

Spirit Airlines’ 8% senior secured notes due 2025 remained in a tailspin on Wednesday with the notes diving another 8 to 9 points after their double-digit decline the previous session.

The 8% notes dropped to the 51 to 52 context on Wednesday with the yield rising to about 54%, a source said.

The heavy losses come on top of the 15 point drop on Tuesday.

Spirit Airlines’ capital structure nosedived after a federal judge blocked JetBlue Airways’ acquisition of the company.

The ruling came as a surprise to the market which had become increasingly optimistic about the merger as the antitrust trial progressed through December, a source said.

Spirit Airlines’ 8% notes were trading in the mid-70s before the verdict was announced midsession on Tuesday.

Fund flows

High-yield ETFs sustained $426 million of daily cash outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds had $40 million of inflows on the day, the source said.

With only Wednesday’s daily cash flow numbers remaining to go into the tally the combined funds are tracking $1 billion of net inflows on the week that concludes with Wednesday’s close, according to the market source.

Indexes

The KDP High Yield Daily index closed Wednesday at 50.36 with the yield now 6.96%.

The ICE BofAML US High Yield index fell 37.2 bps with the year-to-date return now negative 0.788%.

The index was down 27.8 bps on Tuesday.

The CDX High Yield 30 index fell 22 bps to close Wednesday at 105.39.

The index was down 32 bps on Tuesday.

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