Shelf Drilling active in junkland; AMC rebound continues; Ball improves

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 30 – The junk bond market was off to a strong and busier start on Wednesday as Treasury yields continued to come in following the latest GDP print and ADP employment report, which pointed to a cooling economy and labor market.

While there was some selling into the rally midsession, the market still closed the day in positive territory, a source said.

While trading volume will remain muted on Thursday, market players anticipate some volatility surrounding the release of the latest Personal Consumption Expenditures report, the Federal Reserve’s preferred inflation gauge.

The market has dialed back its expectations for future rate increases, especially after the latest JOLTS report came in with the lowest number of job openings since 2021, sources said.

However, the economic data has been ambiguous and, at times, contradictory, and the Fed has been clear about its commitment to a 2% inflation target, a source said.

While many in the secondary space will remain on the sidelines until after the Labor Day holiday in the United States, several names were active on Wednesday with end-of-month cleanup, prepositioning and topical news driving activity.

Shelf Drilling Holdings Ltd.’s 8¼% senior notes due 2025 (Caa3/CCC+) was among the most actively traded names in the secondary space although with little movement in price.

AMC Entertainment Holdings, Inc.’s senior notes continued to strongly rebound following the completion of the company’s APE conversion with the notes nearly cutting their losses in half over the past two sessions.

Ball Corp.’s 6% senior notes due 2029 (Ba1/BB+) improved in active trade.

Primary horizon

The primary market remained idle on Wednesday, and is expected to remain that way until the conclusion of the Labor Day holiday weekend, which gets underway following Friday’s close.

However, a post-Labor Day pipeline of deals is taking shape, sources say.

Names include Syneos Health Inc. with an expected $1.7 billion of high-yield notes to support the buyout by Elliott Investment Management, Patient Square Capital and Veritas Capital. The deal was pre-marketed by Goldman Sachs in mid-August. Pricing discussions took place in the 9% area.

Worldpay could show up with junk bonds backing GTCR’s buyout of a majority stake in the company from Fidelity National Information Services Inc. (FIS). Debt financing includes $8.4 billion of funded debt and a $1 billion revolver. JPMorgan, Goldman Sachs, Citigroup, Wells Fargo, Deutsche Bank and UBS are the committed banks.

And Bausch + Lomb Corp. could come with $1.75 billion of new debt financing to support its acquisitions of Xiidra, libvatrep and AcuStream from Novartis. The debt commitment is from JPMorgan.

Other names include Abercrombie & Fitch Co., which has $769.5 million of maturities in the next 12 months, Caesars Holdings, Inc. – expected to address the CRC Escrow Issuer, LLC/CRC Finco, Inc. 5¼% senior notes due October 2025, and NCR Corp. which plans to spin off its ATM and digital commerce businesses during the fourth quarter, a trader said.

Much depends upon the condition of the market, the source noted, adding that given a supportive backdrop much of the above-mentioned business, and more, could come in September.

In such a scenario September new issue business could come to $30 billion, the trader reckoned.

Shelf Drilling active

Shelf Drilling’s 8¼% senior notes due 2025 was among the top traded issues of Wednesday’s session although with little movement in price.

The 8¼% notes continued to trade in the 98 to 98½ context with the yield about 9 3/8%, a source said.

There was $21 million in reported volume.

The recent strength in crude oil futures may have sparked some interest in the name, a source said.

AMC rebounds

AMC’s senior notes continued to firmly rebound following the completion of the conversion of the company’s preferred equity units, which formerly traded as “APE”s.

The 10% senior secured second-lien notes due 2026 (Caa3/CCC-) shot up another 3 points to close the day at 68¼ with the yield 26 7/8%, a source said.

There was $17 million in reported volume.

AMC’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) saw more muted gains with the notes up ½ point to also close the day at 68¼, a source said.

The yield fell to 16½%.

There was $11 million in reported volume.

The differential in the yields between the two notes was enormous and an indication of the market’s recovery expectations.

Both tranches were heavily sold as the company’s stock collapsed leading into its reverse stock split and conversion of its APEs, which took effect last Friday.

However, the notes have nearly sliced those losses in half over the past two sessions.

Ball improves

Ball Corp.’s 6% senior notes due 2029 improved in active trade on Wednesday.

The notes gained about ¼ point to trade in the 98¼ to 98½ context, a source said.

The yield was about 6 3/8%.

There was $16 million in reported volume.

While improved on Wednesday, the notes are still down about 1 point on the month, according to Trace data.

Fund flows

The high-yield EFTs reported $650 million of daily cash inflows on Tuesday, their third substantial daily inflow in as many days, following inflows of $135 million on Monday and $502 million last Friday, according to market sources.

High-yield investors lately face challenges as they attempt to buy bonds, and are content to let the ETFs do the lifting, a trader commented.

The ETFs, for their part, have not been furiously active buyers, but rather seem satisfied, for the moment, to let their premiums grow, the source added.

Meanwhile the actively managed high-yield funds sustained $85 million of outflows on Tuesday, according to a market source.

The combined funds – ETFs and actively managed – are tracking $1.05 billion of net inflows for the week that is set to conclude with Wednesday’s close, the source added.

Indexes

The KDP High Yield Daily index gained 15 basis points to close Wednesday at 50.50 with the yield 7.45%. The index was up 20 basis points on Tuesday and 8 bps on Monday.

The ICE BofAML US High Yield index gained 26.6 bps with the year-to-date return now 7.098%.

The index rose 40.1 bps on Tuesday and 28.6 bps on Monday.

The CDX High Yield 30 index gained 10 bps to close Wednesday at 103.

The index gained 29 bps on Tuesday and 27 bps on Monday.

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