Volatility continues in secondary; Renewable Energy spikes on acquisition; Intelsat active; McAfee gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 28 – The high-yield new-issue market remained dormant during the final session of February.

While there are deals waiting on the sidelines, issuers are waiting for more stability in markets, sources said.

However, volatility continued in the secondary space on Monday, although the swings between the session’s highs and lows were decreasing.

While the market opened the day down about ¼ point, it rallied as the session progressed and closed the day largely unchanged.

The offers-wanted-in-competition lists outnumbered the bids-wanted-in-competition lists with buyers returning to the space, a source said.

Intelsat Jackson Holdings SA’s 6½% senior secured notes due 2030 were active following the company exit from bankruptcy.

Renewable Energy Group Inc.’s 5 7/8% senior secured notes due 2028 (B2/BB) were the largest gainers of Monday’s session with the notes spiking almost 8 points following Chevron’s acquisition of the company.

Condor Merger Sub, Inc.’s (McAfee Corp.) 7 3/8% senior notes due 2030 (Caa2/CCC+) returned to focus with the notes bouncing off their lows in active trading.

Primary market eyed

The high-yield new issue-market remained dormant during the final session of February.

The most recent deal to clear the market was the Twitter, Inc. 5% senior bullet notes due March 2030 (Ba2/BB+), which came last Wednesday at par.

There are a couple of issuers in the wings, a sellside source said on Monday.

However, they are unlikely to brave the volatility in the global capital markets being driven by geopolitical events, and an increase in the Fed Funds rate anticipated to materialize in the month ahead, the source said.

The high-yield market has been pretty orderly, but issuers are looking for more stability, according to the sellsider.

Although at the outset of 2022 investors anticipated that the Fed would raise its benchmark rate by 0.25%, a view has lately taken hold on that the central bankers will ultimately show up with a rate hike twice that size, the source remarked.

Intelsat active

Intelsat’s 6½% senior secured notes due 2030 were active on Monday, with the notes continuing to trade on a 101-handle.

While the notes briefly traded up to a 102-handle with the early session market for the notes in the 102 to 102¼ context, the majority of prints were in the 101¼ to 101¾ context, according to a market source.

There was $30 million in reported volume.

Intelsat issued $3 billion of the 6½% notes as part of its bankruptcy exit financing, which also included a $3.19 billion term loan B facility and a $500 million revolving credit facility.

The notes were issued as a private placement in late January, a source said. However, they now trade as Rule 144A paper.

Intelsat announced it had completed its financial restructuring process and was emerging from bankruptcy on Feb. 23.

Renewable Energy spikes

Renewable Energy Group’s 5 7/8% senior secured notes due 2028 were the major winners of Monday’s session with the notes spiking almost 8 points on news Chevron would acquire the company.

The 5 7/8% notes closed Monday at 108 after ending Friday on a par-handle, a source said.

There was $25 million in reported volume.

The notes have gained more than 12 points since last Tuesday when Bloomberg reported the green diesel maker was being eyed as an acquisition target.

The report proved true when Chevron announced on Monday it was acquiring Renewable Energy Group in an all-cash transactions valued at $3.15 billion.

Chevron carries an investment-grade rating of Aa2/AA-. Its senior notes trade with a credit spread of 75 bps, a source said.

The credit spread on Renewable Energy’s 5 7/8% senior notes was 186 bps at Monday’s closing level, the source said, suggesting the notes may undergo further spread compression as the deal is finalized.

The deal is expected to close in the second half of 2022.

McAfee gains

McAfee’s struggling 7 3/8% senior notes due 2030 were on the rise in active trading on Monday as buyers returned to the space.

The 7 3/8% notes gained 1 point to return to a 96-handle.

They were changing hands in the 96¼ to 96¾ context heading into the market close, a source said.

There was $25 million in reported volume.

The notes traded down to a 94-handle early Thursday, their lowest level since the $2.02 billion issue priced at par on Feb. 3.

However, they have rallied alongside the broader market since mid-session Thursday.

ETFs see $1.22 billion Friday inflows

High-yield ETFs saw a whopping $1.22 billion of daily cash inflows on Friday, according to a market source.

In line with the large influx of cash, on Monday morning traders reported seeing more offers-wanted-in-competition (OWICs) than bids-wanted-in-competition (BWICs) in the early going.

Actively managed high-yield funds sustained $250 million of outflows on Friday, the source added.

Notwithstanding the healthy $970 million of net inflows to the combined funds on Friday, the dedicated high-yield bond funds are trailing a seven-week run of outflows totaling $17.7 billion, the most significant run of outflows since the period ending March 25, 2020, the market source said, adding that the year to-date cash flows of the junk funds are now negative-$18.9 billion.

Indexes

The KDP High Yield Daily index gained 18 points to close Monday at 62.77 with the yield now 5.08%. The index posted a gain of 8 points on the week last week.

The CDX High Yield 30 index fell 29 bps to close Monday at 105.56.

The index posted a cumulative gain of 47 bps on the week.

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