Ardagh Packaging prices; Restaurant Brands tumbles; Tenet Healthcare, TransDigm trade up

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 3 – The domestic high-yield primary market closed out an active week with one additional deal clearing the primary market.

Ardagh Packaging priced $500 million of five-year senior secured notes (B1/BB/BB+) in a Friday drive-by.

Meanwhile, the secondary space closed another volatile week on soft footing with the market down 1 to 2 points, sources said.

However, bids were hard to come by.

The space has either been offer-heavy or bid-heavy over the past few weeks, making true markets for paper hard to determine, a source said.

While trading volume remained relatively light, liquidity was improving with the past week’s record inflow and the influx of new paper helping to jog activity.

While the overall market was down, the majority of paper to price during Thursday’s session was performing well.

Restaurant Brands International Inc.’s newly priced 5¾% first-lien senior secured notes due 2025 (existing ratings Ba2/BB+) were the exception with the notes tumbling back down toward par after seeing a strong break.

Tenet Healthcare Corp.’s 7½% first-lien senior secured notes due 2025 (B1/BB-/B+) were trading with a large premium.

TransDigm Inc.’s 8% senior secured notes due 2025 (Ba3/B+) outperformed with the company well-liked by investors.

Ardagh prices tight

Ardagh Packaging finished off the first active week in the new issue market since early March, pricing $500 million of five-year senior secured notes (B1/BB/BB+) at par to yield 5¼% in a drive-by.

The yield printed at the tight end of the 5¼% to 5½% yield talk.

With Ardagh in the tally, the primary market saw issuers raise $3.4 billion in five junk-rated, dollar-denominated tranches in the week to Friday's close.

It was the first week since the week ending March 6 to have any high-yield issuance whatsoever.

However, it's the lowest weekly total among all active weeks for 2020, to date.

All of the week's junk deals came as a.m.-to-p.m. drive-bys.

None featured maturities greater than five years (in fact, all five tranches came with five-year maturities).

Four of the five were secured deals.

All came from some of the best-known issuers in the high-yield market.

In addition to Ardagh they included Tenet Healthcare Corp., TransDigm Inc., Restaurant Brands International Inc. and Yum! Brands, LLC.

Week ahead

The week ahead might continue to have activity from opportunistic issuers, a syndicate banker said on Friday.

With the world in the throes of a global pandemic – in some locations hurling challenges at civilization, itself – volatility ebbed but by no means disappeared, the banker observed, noting the 10% stock market swings of mid-March morphed into 1% and 2% swings as March gave way to April.

One hopeful sign for the junk bond market came in the form of a dramatic recovery in energy prices during the course of the week, although they remain deeply depressed, the syndicate banker said.

After rallying a record 25% on Thursday, the barrel price of West Texas Intermediate (WTI) crude for May 2020 delivery soared another 12%, or $3.02, on Friday, to close at $28.34.

The WTI price fell below $20 per barrel on Monday.

Energy represents about 16% of the high-yield index.

Restaurant Brands comes in

Restaurant Brands’ 5¾% senior notes due 2025 tumbled back down to par after seeing a strong break on Thursday.

The 5¾% notes were at par ¼ bid and were changing hands at par ½ Friday afternoon, a market source said.

The notes traded as high as 101¼ after freeing for trade on Thursday.

The deal was not attractive, a source said.

The coupon was tight given the current market climate and the going rate for true investment-grade paper, the source said.

However, the deal was driven to market by reverse inquiry and the books were heavily oversubscribed.

Restaurant Brands priced a $500 million issue of the 5¾% notes at par in a Thursday drive-by.

The yield printed tighter than yield talk in the 6% area.

Tenet trades up

Tenet Healthcare’s 7½% first-lien senior secured notes due 2025 were putting in a strong performance in the aftermarket.

The notes were seen at 101 bid with a few prints at 101¼ in the late afternoon.

“It was definitely well received,” a market source said.

The secured notes had a high coupon and a short duration, which is the type of paper the market is currently looking for.

Tenet priced an upsized $700 million issue of the 7½% notes at par in a Thursday drive-by.

The yield printed at the tight end of the 7½% to 7¾% yield talk and inside of early guidance in the high 7% area.

The issue size increased from $500 million with the deal heard to be as much as four-times oversubscribed.

TransDigm outperforms

TransDigm’s 8% senior secured notes due 2025 outperformed in the secondary space.

The notes were marked at 102 bid in the late afternoon.

The Ohio-based commercial and military aerospace components maker is a well-known and well-liked name in the high-yield space.

“It’s great to see a secured deal from them,” a source said. “To be secured in their capital structure is a huge advantage.”

The company does a fantastic business and knows how to work with leverage, the source said.

The high coupon and short duration of the notes made them especially attractive.

TransDigm priced an upsized $1.1 billion issue of the 8% notes at par in a Thursday drive-by.

The yield printed at the tight end of the 8% to 8¼% yield talk.

The issue size increased from $1 billion.

$504 million Thursday inflows

The dedicated high-yield bond funds had $504 million of net daily inflows on Thursday, according to a market source.

Actively managed high-yield funds had $780 million of inflows on the day.

However high-yield ETFs sustained $276 million of outflows on Thursday, the source said.

News of Thursday's daily flows trails a Thursday afternoon report from Lipper US Fund Flows that the dedicated junk funds saw a gargantuan $7.092 billion of net inflows in the week to the Wednesday, April 1 close.

That's the biggest weekly inflow on record, according to the market source, who added that it easily eclipsed the previous record of $4.97 billion, an inflow that materialized in the week to March 2, 2016.

Indexes down on day, week

Indexes closed Friday in the red with all having cumulative losses on the week.

The KDP High Yield Daily index was down 44 basis points to close Friday at 60.08 with the yield 8.48%. The index was down 42 bps on Thursday and 57 bps on Wednesday after gaining 50 bps on Tuesday and 61 bps on Monday.

The index posted a cumulative loss of 32 bps on the week.

The ICE BofAML US High Yield index shaved off 89.4 bps with year-to-date returns now negative 15.235%.

The index dropped 26.8 bps on Thursday and sank 112.4 bps on Wednesday after gaining 54.8 bps on Tuesday and 59 bps on Monday.

The index posted a cumulative loss of 114.8 bps on the week.

The CDX High Yield 30 index dropped 143 bps to close Friday at 89.12. The index gained 2 bps on Thursday, plummeted 305 bps on Wednesday, was down 156 bps on Tuesday and gained 18 bps on Monday.

The index posted a cumulative loss of 584 bps on the week.

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