Starwood shelves deal; dog days hit primary; J.C. Penney decline continues; WeWork broaches par

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 17 – After vigorous new issue activity in the early part of the week, the dog days of summer appear to have taken hold of the new issue market with no new issue activity expected prior to Labor Day, sources said.

Starwood Property Trust, Inc. shelved its offering of $300 million five-year senior bullet notes (Ba3/BB) after pricing moved out of its targeted range.

Meanwhile, it was a “ho hum” day in the secondary space, a market source said, with activity surrounding the new paper to price over the past week settling.

Recent deals from Denbury Resources Inc., Frontdoor, Inc. and CURO Group Holdings Corp. were largely unchanged in light trading volume on Friday.

J.C. Penney Co., Inc.’s junk bonds continued to trade down after a large second-quarter earnings miss and a ratings downgrade.

WeWork Cos. Inc.’s 7 7/8% senior notes due 2025 (Caa1/B+/BB-) made a large recovery after reporting second-quarter financial results.

While the notes dropped slightly from Thursday’s levels, they broached their issue price over the past week for the first time since pricing in late April.

Dog days

As the Aug. 13 week came to a close, the dog days of summer took hold of the new issue market.

The 10 market sessions remaining in the run-up to the extended Labor Day holiday weekend, which gets underway following the Friday, Aug. 31 close, are unlikely to generate any new issue activity, sources said.

Starwood Property Trust, perhaps the last prospective issuer of summer, said thanks but no thanks, as pricing on its $300 million offering of five-year senior bullet notes (Ba3/BB) moved north of the company's targeted range, a market source said.

Early guidance on the deal was in the 5% to 5 1/8% area. However, in the short time the deal was in the market – the early part of the Aug. 13 week – pricing moved well wide of that range, the source said.

The company is expected to return to the market, but not before Labor Day, which customarily marks the transition from summer to fall in the bond market.

Activity in the primary market is expected to pick up sooner than later following Labor Day, as a considerable portion of a sizable autumn deal pipeline is expected to surface during early September, sources say.

New paper

The new paper to price over the past week drifted out of focus with trading volume light across the board on Friday.

Denbury Resources’ newly priced 7½% senior secured second-lien notes due 2024 (B3/B+) were largely unchanged on Friday.

The notes were quoted at par ¼ bid, par ½ offered and continued to trade around par ¼, according to market sources.

The notes lagged their issue price on Wednesday but returned to par ¼ on Thursday, the level seen after the notes broke for trade on Tuesday.

Denbury Resources priced an upsized $450 million issue of the notes at par in a Tuesday drive-by.

Frontdoor’s newly priced 6¾% senior notes due 2026 maintained their strength on Friday. The notes were seen at 101 5/8 bid, 102 1/8 offered although they were not active, according to sources.

Frontdoor priced a $350 million issue of the notes at par on Tuesday.

CURO Group Holding’s newly priced 8¼% senior notes due 2025 continued to lag their issue price in the secondary space.

The notes closed out the week at 99½. They traded between 98½ and par since hitting the secondary space, sources said.

CURO priced an upsized $690 million issue of the notes at par on Monday. The initial size of the deal had been $675 million.

J.C. Penney lower

J.C. Penney’s junk bonds continued to trade lower on Friday after a disastrous second-quarter earnings report and a ratings downgrade.

J.C. Penney’s 8 1/8% senior unsecured notes due 2019 dropped another 2 points on Friday and were seen trading as low as par ½.

The notes were trading at 102 3/8 bid, 102½ offered Thursday afternoon after closing Wednesday just shy of 104, according to a market source.

J.C. Penney’s 5 5/8% senior unsecured notes due 2020 dropped more than 5 points on Friday. The notes traded down to 87 after closing Thursday at 93.5, according to Trace data.

The 5 5/8% notes were also down about 5 points on Thursday.

J.C. Penney’s junk bonds have been under pressure since Thursday when the company reported a large earnings miss and slashed its forward guidance.

Moody’s Investors Service downgraded J.C. Penney’s corporate family rating to B3 from B2 and the senior unsecured notes to Caa2 from Caa1.

WeWork rebounds

WeWork’s 7 7/8% senior notes due 2025 (Caa1/B+/BB-), at one time referred to as the worst deal to hit the market in 2018, rebounded over the past week.

While the notes were down slightly on Friday, they broached par over the past week for the first time since hitting the market in late April.

The 7 7/8% notes were seen at 99 bid, 99½ offered on Friday. The notes had reached 99¼ bid, par ¼ offered earlier in the week with some trades above par.

The notes have been on the rise since last Friday when WeWork released second-quarter financial information.

The co-working company reported revenue of $421 million, more than double its year-over-year revenue with membership also doubling.

The company also reported a net loss of $723 for the first half of 2018, which was attributed to the setup of new sites that will generate revenue in the latter part of the year, Reuters reported.

News also broke earlier in the week that SoftBank Group Corp. had invested an additional $1 billion in the co-working startup.

WeWork priced an upsized $702 million issue of the notes at par on April 25.

While the deal was said to be well oversubscribed, the notes tanked in secondary trading, dropping as low as 92 in May.

However, the notes have slowly crawled back to return to the realm of their issue price.

Thursday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time, an investor said.

High-yield ETFs saw $98 million of inflows on the day.

Asset managers saw $10 million of inflows on Thursday, the investor added.

The news of Thursday's daily flows follows a Thursday afternoon report from AMG Data Services that the dedicated high yield bond funds saw $197 million of inflows in the week to the Wednesday, Aug. 15, close.

Indexes mixed

Three benchmarks for the high-yield secondary market closed out the week mixed.

The KDP High Yield Daily index reversed its trend of losses and closed the week with gains. The index was up 5 basis points to close Friday at 70.37 with the yield now 5.86%.

The index was down 2 bps on Thursday, 5 bps on Wednesday and 5 bps on Tuesday after opening the week flat.

The Merrill Lynch High Yield index also rounded out the week with gains. The index was up 2.7 bps with the year-to-date return now 1.494%. The index has seesawed between gains and losses for most of the week.

The index was up 13.5 bps on Thursday after a 12.9 bps drop on Wednesday. It was up 2.5 bps on Tuesday and down 4.3 bps on Monday.

The CDX High Yield 30 index saw a slight drop on Friday after also see-sawing between gains and losses throughout the week.

The index was down 1 bps to close Friday at 106.72. The index climbed 14 bps on Thursday, dropped 25 bps on Wednesday, rose 11 bps on Tuesday and was down 10 bps on Monday.

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