Junk posts highest volume since May; secondary surges; Spirit, Ball at a premium

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 10 – The primary junk market remained dormant on Thursday ahead of the extended Veterans Day holiday weekend in the bond market in the United States.

Notwithstanding its quiet conclusion, the week to Thursday had $6.01 billion of new issue business – the largest weekly amount of dollar-denominated issuance since late May, according to Prospect News data.

Meanwhile, the secondary space surged on Thursday following October’s Consumer Price Index report which reflected a faster deceleration of inflation than anticipated.

The cash bond market jumped 2 points in a single session as equity indexes posted historic single-day gains and Treasuries rallied as the market dialed back its expectations for the terminal fed fund rate, a source said.

The cash bond market has erased all losses since the Federal Open Market Committee meeting in early November when cold water was thrown on the market’s hopes for a dovish pivot and chair Jerome Powell warned of a higher terminal rate than anticipated.

The deals to price over the past week surged alongside the broader market with new paper from Ball Corp., Spirit Airlines, Inc., Neptune BidCo US Inc./Nielsen Holdings plc and DISH Network Corp. all trading at steep premiums to their issue price.

Ford Motor Credit Co. LLC’s recently priced 7.35% senior notes due 2027 (Ba2/BB+/BB+) hit their highest level since breaking for trade.

Meanwhile, high-yield mutual and exchange-traded funds continued to see strong inflows with another $1.255 billion entering the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flows Report Newsline.

The inflow follows the previous week’s $4.278 billion inflow, which was the third largest of the year.

Primary calendar

The week ended with just one deal on the active forward calendar.

Pegasus Merger Co./Tenneco Inc. is attempting to place $1 billion of six-year senior secured notes (B2/B-), in the market with early guidance specifying a coupon of 8% at a discount to yield 12%.

The deal, backing the buyout of Tenneco by Apollo, was in the market on a timeline that had it pricing ahead of the weekend.

However there has been no hard news on the proposed placement since the beginning of the week, and sources say it faces headwinds.

No other new issue business has been telegraphed for the Nov. 14 week, according to a high-yield portfolio managers.

However, given Thursday's massive capital markets rally, set in train by a Consumer Price Index report for October suggesting that inflation is moderating, there likely will be new issue business in the week ahead, the investor said.

At a premium

It was a good week for new paper with each deal to price over the past week trading at a steep premium to its issue price.

Ball Corp.’s 6 7/8% senior notes due 2028 (Ba1/BB+) were hovering around par early in the session.

However, the notes surged to a 101-handle after the CPI report reignited the market’s risk-on sentiment.

The notes were changing hands in the 101¼ to 101½ context heading into the market close, according to a market source.

There was $70 million in reported volume.

Ball priced a $750 million issue of the 6 7/8% notes at par to yield 6.879% in a Wednesday drive-by.

Pricing came tight to talk for a yield in the 7% area.

Spirit Airlines’ 8% senior secured first-lien mirror notes due 2025 (Ba2//BB+) jumped 2 points on Thursday.

The notes closed the previous session in the 98¾ to 99 context.

However, they jumped as high as par 3/8 on Thursday and were wrapped around par heading into the market close, according to a market source.

There was $72 million in reported volume.

Spirit Airlines priced an upsized $600 million, from $500 million, issue of the 8% notes at 98.5 to yield 8.599% in a Wednesday drive-by.

Pricing came at the rich end of the 97.5 to 98.5 price talk.

Nielsen’s 9.29% senior secured notes due 2029 (B2/B/BB) shot up more than 2 points to a 94-handle, a source said.

The notes were trading in the 94½ to 94¾ context heading into the market close.

There was $40 million in reported volume.

The notes closed the previous session at 92½, a slight premium to the notes’ discounted 92.294 issue price.

DISH’s 11¾% senior notes due 2027 rose 1½ points to close Thursday on a par handle.

The notes were changing hands in the par to par 3/8 context heading into the market close, a source said.

There was $30 million in reported volume.

The 11¾% notes closed the previous session in the 98½ to 99 context, a premium to the notes’ discounted 98 issue price.

Ford tops par

Ford’s recently priced 7.35% senior notes due 2027 surged on Thursday with the notes hitting their highest level since breaking for trade two weeks ago.

The 7.35% notes jumped 1½ points.

They were changing hands in the par ¾ to 101¼ context heading into the market close, according to a market source.

There was $48 million in reported volume.

The 7.35% notes have largely traded on a 99-handle since the $1.5 billion issue priced at par on Nov. 1.

Fund flows

High-yield ETFs saw $186 million of daily cash inflows on Wednesday, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $108 million of outflows on Wednesday, the source said.

The weekly inflow number of $1.255 billion to Wednesday's close caps a three-week run of inflows that are the largest for such an interval since June 2020, according to a market source.

Indexes

The KDP High Yield Daily index jumped 79 points to close Thursday at 51.50 with the yield 7.66%.

The index fell 26 points on Wednesday and 1 point on Tuesday after rising 7 points on Monday.

The ICE BofAML US High Yield index jumped 150.5 basis points with the year-to-date return now negative 11.95%.

The index fell 52 bps on Wednesday and 1.1 bps on Tuesday after rising 11.4 bps on Monday.

The CDX High Yield 30 index surged 212 bps to close Thursday at 100.55.

The index fell 84 bps on Wednesday and 17 bps on Tuesday after gaining 33 bps on Monday.

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