Primary prices $2.43 billion in four deals; Starwood holds premium; funds add $289 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 14 – A news-heavy Thursday session in the high-yield new issue market saw four dollar-denominated deals price for a total face amount of $2.43 billion

Vital Energy Inc., Baytex Energy Corp. and Encore Capital Group, Inc. were among the issuers to price upsized deals on Thursday.

Meanwhile, it was a soft day in the secondary space with the latest slate of macro data spreading a risk-off sentiment through the market.

The Consumer Price Index report released Tuesday did little to move the needle in the market despite coming in hotter than expected.

However, the Producer Price Index report released Thursday also came in above forecast, calling into question whether the Fed would have the confirmation needed to begin cutting rates.

“People are worried about higher-for-longer,” a source said.

The lower-than-expected retail sales figure was also a worrying sign.

The high-yield market has been trading at multi-year tights with credit spreads on the cusp of breaking through 300 bps.

While some sources remain flabbergasted by current spreads, the market has largely priced in a soft-landing scenario with rate cuts the result of the Fed winning its battle against inflation as opposed to an economic downturn.

However, with retail sales figures coming in lower than anticipated and inflation still ticking up, the market was expressing some doubt about the scenario.

The cash bond market was off about ¼ point on Thursday after a largely sideways week, a source said.

However, with the primary market pipeline reactivating, new paper was in focus with aftermarket performances remaining strong.

Aston Martin Capital Holdings Ltd.’s 10% senior secured notes due 2029 (B3/B-/B) were putting in a strong performance in the aftermarket with the notes jumping to a 101-handle.

Starwood Property Trust, Inc.’s 7¼% sustainability-linked senior notes due 2029 (Ba3/BB-/BB+) were able to maintain the gains made on the break despite a heavy day for the market.

Outside of new paper, Grifols, SA's 4¾% senior notes due 2028 (Caa1/CCC+) were again in the spotlight with the notes falling after S&P downgraded them.

Meanwhile, inflows continued with high-yield mutual funds and exchange-traded funds seeing $289 million enter the space in the week through Wednesday’s close.

Big demand

Four dollar-denominated deals priced Thursday for a total face amount of $2.43 billion.

Three of the four came as drive-bys.

Three upsized.

Executions appears sharp, as all four of Thursday’s dollar deals priced at the tight or rich ends of price talk.

Among the session’s transactions, Vital Energy priced an $800 million issue of eight-year senior notes (B2/B) at par to yield 7 7/8%.

The deal saw a big upsize from $575 million.

Baytex Energy’s upsized $575 million issue (from $500 million) of 7 3/8% eight-year senior notes (B1/BB-) priced at 99.266 to yield 7½%, having come into the market on the back of reverse inquiry that exceeded deal-size, traders said.

Encore Capital Group’s upsized $500 million issue (from $400 million) of five-year senior secured notes (Ba2/BB+) priced at par to yield 9¼%.

Demand was heard to come to three-times deal size, according to a bond trader who had the new Encore Capital notes trading at par ½ bid, 101 offered on Thursday afternoon.

TransDigm Inc. priced a $550 million add-on to its 6 3/8% senior secured notes due March 1, 2029 (Ba3/B+) at 99.75 in a Thursday drive-by, according to market sources.

Thursday’s transactions cleared the active forward calendar.

Aston Martin strong

Aston Martin’s 10% senior secured notes due 2029 were putting in a strong performance in the aftermarket with the demand seen during bookbuilding following the notes into the secondary space.

The 10% notes traded as high as 102 on Thursday but settled into the 101¼ to 101½ context heading into the market close.

Aston Martin priced a $950 million tranche of the 10% notes at par on Wednesday as part of a dual-currency offering.

The yield printed tighter than talk for a yield of 10¼% to 10½%.

Demand for the dollar-denominated notes was heard to be $6 billion.

The deal also included a £400 million tranche of sterling-denominated notes priced at par to yield 10 3/8%.

Starwood at a premium

Starwood Property’s new 7¼% sustainability-linked senior notes due 2029 held on to the gains made on the break despite heavy market conditions on Thursday.

The 7¼% notes were largely unchanged in the par ¼ to par ½ context, a source said.

There was $57 million in reported volume.

Starwood Property priced an upsized $600 million, from $400 million, issue of the 7¼% notes at par on Wednesday.

The yield printed at the tight end of revised talk for a yield of 7¼% to 7 3/8% which tightened from earlier talk for a yield in the 7½% area.

Grifols under pressure

Grifols’ 4¾% senior notes due 2028 were under pressure on Thursday after an S&P downgrade.

The 4¾% notes fell 2 points in active trade.

They were changing hands in the 81½ to 82 context heading into the market close, a source said.

There was $16 million in reported volume.

The notes fell after S&P downgraded the company’s senior secured notes to B+ from BB- and unsecured notes to CCC+ from B-.

S&P is forecasting negative free cash flow and increased leverage in 2024 with EBITDA margins also expected to come in below expectations. (See related article in this issue.)

Indexes

The KDP High Yield Daily index was down 17 bps to close Thursday at 50.66 with the yield 6.9%.

The index inched up 1 bp on Wednesday and 1 bp on Tuesday after shedding 8 bps on Monday.

The ICE BofAML US High Yield index was down 28.8 bps with the year-to-date return now 0.871%.

The index added 9.9 bps on Wednesday and 3 bps on Tuesday after shaving off 2.6 bps on Monday.

The CDX High Yield 30 index was down 33 bps to close Thursday at 106.67.

The index rose 5 bps on Wednesday, 21 bps on Tuesday and 1 bp on Monday.

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