Morning Commentary: New Tenneco secured notes trade sharply lower; primary dries up

By Paul A. Harris

Portland, Ore., Aug. 16 – Bonds priced in a deeply discounted Tuesday sale to extract hung-up Tenneco Inc. secured bridge debt from dealer balance sheets broke sharply lower and continued to plumb the depths on Wednesday morning, sources say.

The Tenneco 8% senior secured notes due November 2028 (B1/B) changed hands at 82¾ on the morning, after pricing at 85 on Tuesday afternoon, according to a bond trader in New York.

In the name of fostering etiquette, suffice it to say that market sources were employing vivid descriptive language as they excoriated the deal.

The new Tenneco secured paper traded as low as 82½ on the break, then bounced into the 83½ bid, 84 offered context, the trader said.

A high-yield portfolio manager, who declined to play the deal, had them at 83 1/8 bid, 83 7/8 offered heading into the Tuesday close.

At final price talk in the 85.5 area, the upsized $1.9 billion tranche (from $1.75 billion) already represented a big loss for dealers who took part in the debt commitment, sources recounted.

But the market was insisting that the deal was still not cheap enough (there were covenant concessions announced with price talk on Tuesday morning).

There is believed to still be around $1 billion of unsecured debt, backing Apollo’s buyout of Tenneco, remaining hung up on dealer balance sheets, the New York trader noted.

Given how the secured deal went, it will require a strong market rally to provide a backdrop in which that unsecured paper might be placed with investors, the source added.

Away from Tenneco, the broad high-yield bond market opened 1/8 of a point lower on Wednesday.

Cash bonds remained 1/8 of a point lower at mid-morning, while the CDX index was unchanged, the trader said.

The recently minted RingCentral Inc. 8½% senior notes due August 2030 (B1/BB/BB) also came in for some of the aforementioned vivid descriptive language on Wednesday morning, at which time the trader had them at 98 bid, 98½ offered.

The $400 million issue priced at par on Aug. 11.

The trader found the overall tone of the market displeasing, with negative economic headlines continuing to roll out of China and risk-free rates spiking to decade-and-a-half highs.

The new issue market remained quiet on Wednesday morning.

In the wake of a comparatively active opening half of August ($10.3 billion in 15 tranches versus $6.7 billion for all of July) only one deal remains on the active forward calendar.

Maxim Crane Works, LP is shopping a $500 million offering of Maxim Crane Works Holdings Capital, LLC five-year second priority senior secured notes (Caa1/B-), in the market with initial guidance of 11¾% to 12%, and expected to price on Thursday.

The deal followed $375 million to $400 million of reverse inquiry into the market, sources say.

J.P. Morgan Securities LLC is on the left for the Maxim Crane deal.

Word began circulating in the market on Tuesday afternoon that it will be JPMorgan’s last deal before Labor Day, sources say.

Summer 2023 high-yield bond issuance could be pretty well played out, the New York trader said on Wednesday morning.

Issuance in the run-up to Labor Day, two-and-a-half weeks hence, is apt to be sparse indeed, sources say.

Fund flows

The dedicated high-yield bond funds sustained $349 million of net daily cash outflows on Tuesday, according to a market source.

High-yield ETFs saw $334 million of outflows on the day.

Actively managed high-yield funds sustained $15 million of outflows on Tuesday, the source said.

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