Junk secondary softer; iHeart weaker; Glatfelter under pressure; TransDigm active

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 29 – The junk bond secondary space had its second consecutive session of losses as the market continued to pull back following strong gains over the previous week.

The cash bond market was off ¼ point in light volume with end-of-year illiquidity beginning to set in, sources said.

Portfolio cleanup was a driving force of trading activity with several off-the-run names trading in heavy volume on Tuesday.

iHeartCommunications, Inc.’s 8 3/8% senior notes due 2027 (Caa1/B-) were among the most actively traded issue of Tuesday’s session with the notes weaker.

Glatfelter Corp.’s 4¾% senior notes due 2029 (Caa2/CCC) were under pressure following a series of rating downgrades over the past month.

TransDigm Group Inc.’s senior notes were mixed in active trading with its unsecured notes weaker while its secured notes remained unchanged.

Primary

The Tuesday session came to a close with the high-yield primary market still awaiting its first news item of the post-Thanksgiving week, sources said.

Market watchers have begun to extract the Pegasus Merger Co./Tenneco Inc. $1 billion offering of six-year senior secured notes (B2/B-), backing the buyout of Tenneco by Apollo, from their active calendars, characterizing it as a hung deal.

It has produced little if any news since it was announced at the very beginning of November, sources say.

The buyout, itself, was completed on Nov. 17, with the investment banks ponying up their committed financing even though the bonds and the $1.4 billion term loan await syndication.

Unofficial price talk as low as 84 had circulated the market, a trader said Tuesday, adding that even at that price dealers were unable to get a book.

Away from that situation there is not much motivation for the banks to bring deals as they face substantial, loss-generating discounts during what's left of 2022, sources say.

It has become reasonable to expect that the market might improve in the new year, the trader said.

Don't look for the primary market to remain totally idle in the final weeks of the year, the source added.

There are deals – even leveraged buyout deals coming with reasonable leverage – that can get done, the trader said, adding that there may be reasons, such as an early 2023 acquisition closing, for bringing such a deal during the final weeks of 2022.

A substantial amount of reverse inquiry on a given issuer might also spur dealers into action before the end of the year, an investor said.

And high-yield investors are understood to have cash to put to work on new issues, sources say.

iHeart weaker

iHeart’s 8 3/8% senior notes due 2027 were weaker in heavy volume on Tuesday.

The notes fell about ½ point to break below an 89-handle.

They were marked in the 88¾ to 89¼ context heading into the market close, according to a source.

The yield was about 11½%.

There was $19 million in reported volume.

The notes were also active during Monday’s session and were trading on an 89-handle, a level they jumped to amid the market strength of the previous week.

Glatfelter under pressure

Glatfelter’s 4¾% senior notes due 2029 were under pressure in heavy volume on Tuesday with the manufacturer of engineered materials’ ratings undergoing a series of downgrades over the past month.

The 4¾% notes fell 1½ points with the notes trading in the 65½ to 66½ context heading into the market close, according to a market source.

The yield was north of 12%.

There was $13 million in reported volume.

Moody’s Investors Service downgraded GlatFelter’s corporate family credit rating to Caa1 from B1 and its unsecured notes to Caa2 from B2 early last week, citing weak liquidity which is expected to worsen in the coming year.

S&P Global Ratings dropped Glatfelter’s issuer credit rating to CCC+ from B+ and its unsecured notes to CCC from B in late October, citing new leverage projections of 6x for 2023, which is 2x higher than previous projections.

Both rating agencies eyed GlatFelter’s 2024 term loan with Moody’s also citing refinancing risks heading into the looming maturity.

TransDigm active

TransDigm’s senior notes were mixed in active trading with its unsecured notes weaker while its secured notes were largely flat.

TransDigm’s 5½% senior notes due 2027 (B3/B-) were down ½ to ¾ point.

The notes were trading in the 93¾ to 94¼ context heading into the market close.

The yield was just shy of 7%.

There was $12 million in reported volume.

TransDigm’s 8% senior secured notes due 2025 (Ba3/B+) continued to trade in the 101½ to 102 context with the yield about 6½%.

There was $11 million in reported volume.

The notes were active after the aircraft component manufacturer launched a $1.73 billion term loan to extend the maturity of its term loan due in 2024.

Fund flows

The dedicated high-yield bond funds sustained $425 million of net daily cash outflows on Monday, according to a market source.

The high-yield ETFs saw $430 million of outflows on the day.

Actively managed high-yield funds were modestly positive on the day, posting $5 million of inflows on Monday.

The combined funds are tracking $96 million of net inflows on the week that will conclude with Wednesday's close, the source said.

And with two daily fund flow numbers – Tuesday's and Wednesday's – remaining to go into the tally, the November-to-date cash flows of the combined funds stood at plus-$8.1 billion, rendering the present month the biggest, in terms of cash inflows, since July 2020, according to the market source.

Indexes

The KDP High Yield Daily index slipped 9 points to close Tuesday at 51.99 with the yield now 7.44%.

The index was down 7 points on Monday.

The ICE BofAML US High Yield index was down 14.2 basis points with the year-to-date return now negative 11.001%.

The index fell 23.4 bps on Monday.

The CDX High Yield 30 index gained 17 bps to close Tuesday at 100.88.

The index fell 87.5 bps on Monday.

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