Twitter prices; selling pressure unabated in junk secondary; Tenneco, Renewable Energy jump

By Abigail W. Adams and Paul A. Harris

Portland, Me., Feb. 23 – In the teeth of capital markets turbulence being generated by geopolitical and financial headlines the high-yield drive-by market reactivated with Twitter Inc. making an appearance on Wednesday.

Meanwhile, selling pressure continued to drive down the secondary space which opened Wednesday unchanged but closed down about 1/8 point, sources said.

The situation in the Ukraine compounded pressure on a market already in the process of repricing itself amid a higher-rate environment.

Despite the pressure in the market, some credits saw enormous moves to the upside on Wednesday due to merger and acquisition activity.

Tenneco Inc.’s capital structure skyrocketed following news Apollo Global Management would acquire the automotive parts manufacturer.

Renewable Energy Group Inc.’s 5 7/8% senior secured notes due 2028 (B2/BB) also jumped in active trading as speculation mounts that the company is a takeover target.

Primary chirps

Twitter, Inc. priced the session's sole deal, a $1 billion issue of eight-year senior bullet notes (Ba2/BB+) that came at par to yield 5%, at the wide end of the 4 7/8% to 5% talk.

It was playing to a $2 billion order book, a trader said.

The market took careful measure of the Twitter deal because if a highly rated issue from a familiar name did not receive friendly treatment it could spell trouble for the new issue bourse, the trader said.

In the end it was a little difficult to discern how well Twitter was treated, the source added, noting that the new Twitter 5% eight-year bullet was 99¾ bid, par ¼ offered at the close.

However Twitter broke for trading just as the big equity indexes nose dove into the Wednesday close, with the S&P 500 index ultimately falling into correction territory, the trader recounted.

That complicates any measure of the primary market that the Twitter deal might have provided, the trader surmised, adding that investors are going to have to wait until Thursday to see where the deal cleans up.

In the wake of Twitter there is a single deal on the active forward calendar, and it is expected to price on Thursday.

BellRing Distribution, LLC has been running a brief roadshow for an $840 million offering of 10-year senior notes (B3/B), in the market with initial guidance in the 7% area.

The order book was heard to be at $1 billion, late Wednesday, the trader said.

The repricing

The secondary space continued to see red on Wednesday with geopolitical tensions compounding pressure on a market already repricing itself amid a higher-rate environment.

While the 10-year Treasury yield remained below the 2% threshold on Wednesday, it did little to quell the market, which is now widely expecting a 50 basis points rate increase at the Federal Reserve’s March meeting, which is about two weeks away, a source said.

The CDX index closed below a 105-handle on Wednesday, its lowest level in recent history.

Bids-Wanted-in-Competition lists outnumbered Offers-Wanted-In-Competition lists nearly two-to-one with $4.5 billion in BWICs circulating the market, a source said.

ETFs remained the main driver of selling activity with institutional accounts both buyers and sellers during Thursday’s session, a source said

Rate-sensitive names remained the hardest hit amid the selling pressure with lower-quality, higher-coupon paper outperforming.

“Higher-coupon, lower-quality paper is definitely doing better than the BBs,” a source said. “As the market reprices, those coupons still stand out as cheap.”

However, the repricing of the market may still be in its early stages with the Federal Reserve still buying Treasuries, a source said.

Tenneco’s acquisition

Tenneco’s junk bonds skyrocketed following news Apollo Global Management will acquire the automotive parts manufacturer.

The company’s 5% senior notes due 2026 (Caa1/B) jumped 9 points to close Wednesday wrapped around par, a source said.

There was $62 million in reported volume.

The 5% notes were on a 91-handle heading into Wednesday’s session.

Tenneco’s 5 1/8% senior notes due 2029 (Ba3/B+) also jumped 9 points to close the day at 101½.

There was $45 million in reported volume.

The notes were on a 92-handle heading into Wednesday’s session.

News broke Wednesday that funds affiliated with Apollo would purchase Tenneco in an all-cash transaction with an enterprise value of $7.1 billion.

The news comes just one day after competitor Meritor Inc. announced that it would be taken over by Cummins Inc. in an acquisition with a total enterprise value of $3.7 billion.

Renewable Energy recharges

Renewable Energy’s 5 7/8% senior secured notes due 2028 were also riding the acquisition wave on Wednesday as speculation mounts that the company is a takeover target.

The 5 7/8% notes jumped 5 points to close the day in the par to par ¼ context, a source said.

There was $14 million in reported volume.

Bloomberg reported late Tuesday that the green diesel maker has received takeover interest and is exploring its options.

While the 5 7/8% notes launched 2022 on a 102-handle, they have been on a steady downtrend over the past two months alongside the broader market.

The notes hit their lowest level on Tuesday since pricing at par on May 2021.

They closed the previous session on a 95-handle.

$590 million Tuesday outflows

The dedicated high-yield bond funds sustained $590 million of net outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $569 million of outflows on the day.

Actively managed high-yield funds sustained $21 million of outflows on Tuesday, the source said.

Indexes

The KDP High Yield Daily index shaved off 1 point to close Wednesday at 62.4 with the yield now 5.23%. The index slid 10 points on Tuesday.

The CDX High Yield 30 index fell 18 bps to close Wednesday at 104.96.

The index fell 24 bps on Tuesday.

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