Primary prices $2.47 billion; Empire in demand; Weatherford on a 102-handle; Arko below par

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 15 – It was another busy session for the high-yield primary market with three issuers expected to price $2.47 billion over five tranches.

The Oct. 18 week is expected to be equally busy with $2.6 billion remaining on the forward calendar.

Meanwhile, the risk-on sentiment continued in the secondary space with the cash bond market up another 1/8 to ¼ point following Thursday’s rally.

While concerns about a possible correction hitting credit markets were temporarily abated, there remains some overhang in the market, a source said.

The dialogue around inflation has shifted with several sources now indicating their belief that inflation is here to stay until the Federal Reserve takes action.

While the overall cash-bond market rallied over the past two sessions, rate-sensitive names were slow to participate although the selling pressure did wane.

Low-coupon, longer-duration bonds “seemed to have found a floor, but they’re not really being bid for,” a source said. “Guys are still looking to manage their rate risk.”

New and recent issues continued to dominate the tape although with mixed performances.

Empire Resorts, Inc.’s 7¾% senior secured notes (B+/BB+) were the major gainers of Friday’s session with the notes climbing to a 102-handle heading into the market close.

Weatherford International Ltd.’s 8 5/8% senior notes due 2030 (B3/CCC+) were also performing well with the notes on a 102-handle.

However, Vertiv Group Corp.’s 4 1/8% senior secured notes due 2028 (B1/BB-) largely fell flat in the secondary space.

And Arko Corp.’s 5 1/8% senior notes due 2029 (B3/B-) underperformed with the notes sinking below par during Friday’s session.

Empire in demand

Empire Resorts’ 7¾% senior secured notes were the major gainers of Friday’s session.

The notes continued to climb after a strong break. They opened the day on a 101-handle but were marked at 102¼ bid heading into the market close, a source said.

The performance of the notes was partly attributed to supply and demand with the issue size small but the high-coupon bonds sought after by investors.

The casino-lodging operator is a part of the reopening trade, which is still popular.

“People are looking at the name as a way to create alpha in the gaming sector,” a source said.

Empire Resorts priced a $300 million issue of the 7¾% notes at par on Thursday.

The yield printed at the tight end of the 7¾% to 8% yield talk.

Weatherford on a 102-handle

Weatherford’s 8 5/8% senior notes due 2030 were in focus on Friday with the notes performing well.

The 8 5/8% notes traded as high as 102 3/8 bid, 102½ offered.

However, they came in as the session progressed with some fatigue setting in and players looking to exit the name around 102, a source said.

The notes were marked at 102 bid, 102 1/8 offered heading into the market close.

While the notes closed the day off of their highs, they traded well, “as expected,” the source said.

The energy sector has been hot over the past few weeks amid soaring crude oil futures.

WTI crude oil futures continued its climb on Friday settling at $82.38, an increase of $1.07 or 1.32%.

Weatherford priced an upsized $1.6 billion, from $1.5 billion, issue of the 8 5/8% notes at par on Thursday.

Vertiv flat

Vertiv’s 4 1/8% senior secured notes due 2028 fell flat in the secondary space with the notes hovering around their issue price since breaking for trade.

The 4 1/8% notes were marked at par bid, par 3/8 offered heading into Friday’s close – roughly the level reached after breaking for trade.

The convenience store operator priced an $850 million issue of the 4 1/8% notes at par on Thursday.

Arko below par

Arko’s 5 1/8% senior notes due 2029 underperformed on Friday with the notes sinking below par.

While the notes opened the day at par ¼ bid, they sank to 99¼ bid, 99¾ offered by the market close.

Sources attributed the poor performance of the notes to weak allocations with flippers looking to exit the name before the weekend.

There was also no supporting bid from underwriters, a source said.

Arko priced a $450 million issue of 5 1/8% notes at par on Thursday.

The yield printed in the middle of the 5% to 5¼% yield talk.

$425 million Thursday inflows

The dedicated high-yield bond funds had $425 million of net daily inflows on Thursday, according to a market source.

High-yield ETFs saw $520 million of inflows on the day.

However actively managed funds saw negative cash flows on the day, sustaining $95 million of outflows on Thursday, the source said, adding that outflows from the actively managed junk funds moderated. On Wednesday funds from that cohort sustained $375 million of outflows.

News of Thursday's daily flows follows a Thursday report that the combined funds sustained $1.8 billion of net outflows in the week to the Wednesday, Oct. 13 close, the largest weekly outflows from junk since mid-June, according to the market source.

Indexes

The KDP High Yield Daily index gained 5 points to close Friday at 69.45 with the yield now 3.83%.

The index fell 4 points on Thursday, 1 point on Wednesday and 23 points on Tuesday.

The CDX High Yield 30 index gained 5 basis points to close Friday at 109.22. The index jumped 50 bps on Thursday and 16 bps on Wednesday after dropping 34 bps on Tuesday.

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