Junk bond market: Alcoa adds to gains; Station Casinos at a premium; United Rentals flat

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 8 – The junk bond secondary space closed the week on firm footing with the market interpreting the latest U.S. non-farm payrolls report as a positive, sources said.

The report showed greater job growth than expected but it also showed an unexpected uptick in the unemployment rate.

While flat at the open, the market notched another 1/8 to ¼ point gain as Treasury yields came in slightly.

While some still warn of rate increases, the consensus is now for rate cuts to begin in June, a source said.

The deals to clear the primary market on Thursday were putting in solid performances in heavy volume.

Alcoa Nederland Holding BV’s 7 1/8% senior notes due 2031 (Ba1/BB/BB+) continued to notch gains after jumping to a 101-handle on the break.

The Station Casinos LLC 6 5/8% senior notes due 2032 (B3/B) held on to their gains with the notes continuing to trade at a premium to their issue price.

United Rentals (North America), Inc.’s 6 1/8% senior notes due 2034 (Ba2/BB+) also remained above water on Friday although the tight pricing left little room for upward movement, a source said.

Looking ahead

The dollar-denominated primary market had no action on Friday.

The active forward calendar remained empty at the session’s close.

Deal tips for the week ahead were scarce on Friday afternoon.

U.K. car-maker Aston Martin pre-marketed an expected £1.1 billion equivalent of Aston Martin Lagonda Global Holdings plc senior secured notes, in dollars and pounds sterling, late this week, sources say.

Accounts will like the name at the right price, according to a market source in London who noted that investors are concerned about the company’s rate of cash burn, and its profitability.

The company’s losses in 2022 rose to £495 million from £213.8 million the previous year, although in the final quarter of 2022 Aston Martin posted a £6.6 million profit, a market source recounted.

A sellside source in New York maintains that a deal, with a five- or seven-year tenor, could be near at hand.

Elsewhere, a trader mentioned LifePoint Health Inc. as a possible issuer in the near term.

The Tennessee-based company set a Monday lender call to launch a new bank loan, via Citigroup.

Alcoa adds

Alcoa’s 7 1/8% senior notes due 2031 continued to notch gains in heavy volume on Friday after a strong break propelled the notes to a 101-handle.

The notes were up 1/8 to ¼ point.

They traded as high as 101 7/8 in intraday activity but settled into the 101 3/8 to 101 5/8 context by the late afternoon, a source said.

Alcoa priced a $750 million issue of the 7 1/8% notes at par on Thursday.

The yield printed 12.5 basis points tighter than the 7¼% to 7½% yield talk.

Station Casinos at a premium

Station Casinos’ 6 5/8% senior notes due 2032 continued to move at a solid premium to issue price in active trade on Friday.

The 6 5/8% notes were trading in a tight range in the par 3/8 to par 5/8 context in the late afternoon, a source said.

There was $43 million in reported volume.

Station Casinos priced a $500 million issue of the 6 5/8% notes at par in a Thursday drive-by.

The yield printed at the tight end of the 6 5/8% to 6¾% yield talk.

United Rentals flat

United Rentals’ 6 1/8% senior notes due 2034 were above water in the aftermarket although they failed to see much liftoff with the tight pricing leaving little upside potential.

The 6 1/8% notes traded as high as par 3/8 but were changing hands in the par to par 1/8 context in the late afternoon, a source said.

“It came too tight,” a source said.

The company priced a $1.1 billion issue of the 6 1/8% notes at par in a Thursday drive-by.

The yield printed in the middle of yield talk in the 6 1/8% area.

Fund flows

The dedicated high-yield bond funds had $162 million of net daily cash inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds had $84 million of inflows on the day.

High-yield ETFs had $78 million of inflows on Thursday, the source said.

News of Thursday’s daily flows follows a Thursday afternoon report that the combined funds had $346.7 million of net inflows for the week to Wednesday’s close, according to fund-tracker, Lipper.

That inflow follows the previous week’s net outflow of $451.7 million, the source said.

Indexes

The KDP High Yield Daily index gained 7 basis points to close Friday at 50.89 with the yield 6.76%.

The index was up 9 bps on Thursday, 10 bps on Wednesday, 6 bps on Tuesday and unchanged on Monday.

The index was up 32 points on the week.

The ICE BofAML US High Yield index gained 12.6 bps with the year-to-date return now 1.058%.

The index added 14.5 bps on Thursday, 14.9 bps on Wednesday, 7 bps on Tuesday and 8.3 bps on Monday.

The index added 57.5 bps on the week.

The CDX High Yield 30 index was up 6 bps to close Friday at 106.73.

The index was up 11 bps on Thursday and 18 bps on Wednesday was down 20 bps on Tuesday and up 8 bps on Monday.

The index was up 23 bps on the week.

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