High yield: Calendar builds; Square in focus, tranches mixed; Tenet lags; Mueller gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 19 – Another $1.13 billion of junk bonds cleared the market on Wednesday and the just over $5 billion of upcoming business was added to the new issue calendar.

Meanwhile, it was a soft day in the secondary space as concern about inflation and a shift away from easy-money policies sparked a flight from risk assets.

While the secondary space was off about ¼ point, volume outside of recent issues was light with few sellers in the market, a source said.

“No one wants to sell on a down day,” the source said.

New paper continued to dominate the tape with recent deals following different trajectories.

Square, Inc.’s two tranches of senior notes (Ba2/BB/BB) were in focus with the short-duration notes trading with a premium while the company’s longer duration notes lagged in intraday activity.

Tenet Healthcare Corp.’s 4¼% senior secured first-lien notes due 2029 (B1/B+/B+) were also lagging their issue price in high-volume activity.

Intertape Polymer Group Inc.’s 4 3/8% senior notes due 2029 (Ba3/B+) were coming in from the heights reached after breaking for trade with the notes dropping back down to a par-handle.

However, Mueller Water Products, Inc.’s 4% senior notes due 2029 (Ba1/BB) outperformed despite the down day for the market and traded up to a 101-handle.

Primary Wednesday

As volatility rocked equities, and commodities were crushed on Wednesday, junk was dinged, a trader said.

However, the index, which opened ¼ point off, plowed its way back along with the stock market to end the day around 1/8 of a point lower, the trader said.

Another $1.13 billion of dollar-denominated junk cleared the new issue market.

And the active new issue calendar saw a substantial buildup, with $5.33 billion expected to clear before the halfway point of the last week in May (see related stories in this issue).

Square’s tranches

Square’s two tranches of senior notes were in focus on Wednesday, although they followed different trajectories in high-volume activity.

The fintech company’s 2¾% senior notes due 2026 traded to a high of 101¼ during Wednesday’s session.

However, the notes came in heading into the close and were changing hands in the par 5/8 to par ¾ context.

While the shorter-duration tranche was trading at a premium, Square’s 3½% senior notes due 2031, at times, lagged their issue price.

The 3½% senior notes traded in a range of 99 to par ½ during the session. They were largely wrapped around par heading into the close.

Square is a solid company with plenty of market cap, a source said. However, the pricing of the notes was unattractive.

The spread between the shorter and longer duration tranches “doesn’t even compensate you for extending out,” a source said. “It should be at least 825 bps just to extend without factoring in the credit curve.”

Square priced a $1 billion tranche of the 2¾% notes and a $1 billion tranche of the 3½% notes at par on Tuesday.

The 2¾% notes priced at the tight end of the 2¾% to 3% yield talk; the 3½% notes priced at the tight end of talk in the 3½% to 3¾% yield talk.

Tenet Healthcare lags

Tenet Healthcare’s 4¼% senior secured notes due 2029 (B1/B+/B+) had a lackluster reception in the secondary space with the notes lagging their issue price.

The 4¼% notes traded in a range of 99 to par during Wednesday’s session. They were changing hands in the 99 5/8 to 99¾ context heading into the market close.

There was more than $82 million in reported volume heading into the close.

The health care company is highly leveraged and the notes priced tight for the credit, a source said.

Allocations were most likely weak given the size of the issue with lots of flippers involved.

Tenet Healthcare priced a $1.4 billion issue of the 4¼% notes at par on Tuesday.

The yield printed at the wide end of the 4% to 4¼% yield talk.

Intertape comes in

While the notes had a strong break, Intertape Polymer Group’s 4 3/8% senior notes due 2029 dropped back down to par during Wednesday’s session.

The notes were down 1 point from the peak reached after breaking for trade.

They were changing hands in the par 1/8 to par ¼ context heading into the close.

The notes were on a 101-handle after breaking for trade.

Intertape Polymer priced an upsized $400 million, from $350 million, issue of the 4 3/8% notes at par on Tuesday.

The yield printed low to the 4½% to 4¾% yield talk.

Mueller Water Products outperforms

Mueller Water Products’ 4% senior notes due 2029 were putting in a strong performance on Wednesday despite the down day for the market.

The 4% notes traded in a range of par 5/8 to 101½ during the session.

They traded up to a 101-handle heading into the close and were marked at 101 bid, 101 3/8 offered, sources said.

The water infrastructure company is a solid credit with low leverage, a source said. Proceeds were also being used to take out the company’s 5½% notes due 2026, which helped drive demand for the new issue.

Mueller Water Products priced a $450 million issue of the 4% at par on Tuesday.

The yield printed at the tight end of the 4% to 4 1/8% yield talk.

Indexes down

Indexes were in the red on Wednesday.

The KDP High Yield Daily index dropped 10 points to close Wednesday at 69.48 with the yield now 3.94%.

The index shaved off 1 point on Tuesday and was down 2 points on Monday.

The ICE BofAML US High Yield index dropped 24.7 basis points with the year-to-date return now 1.779%.

The index shaved off 0.6 bps on Tuesday after gaining 1.3 bps on Monday.

The CDX High Yield 30 index dropped 11 bps to close Wednesday at 109.17.

The index was down 16 bps on Tuesday and 28 bps on Monday.

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