Six issuers price $3.57 billion; Macy’s, DaVita weaken; funds have record weekly inflow

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 28 – A high-volume Thursday session in the high-yield primary market saw six issuers price a total $3.57 billion face amount of junk.

Executions were tight, and book color suggested that demand for speculative-grade paper remains strong.

All but one of Thursday's deals came by the drive-through window.

Diversified Healthcare Trust priced an upsized $1 billion issue, Molina Healthcare, Inc. priced an $800 million issue, Ortho-Clinical Diagnostics SA priced a $400 million issue, and INTL FCStone Inc. priced a $350 million issue at a discount.

Ardagh Packaging Finance plc and Ardagh Holdings USA Inc. priced an upsized $715 million add-on to their 4 1/8% senior secured notes due Aug. 15, 2026 (B1/BB/BB+).

And Qorvo, Inc. priced an upsized $300 million add-on to its 4 3/8% senior notes due 2029 (Ba1/BB+).

All eyes will be on Wesco Distribution Inc. on Friday as it is expected to price a $2.825 billion two-part offering of senior notes (B2/BB-/BB-).

Meanwhile, the secondary space was volatile on Thursday with the market strong for the majority of the session. However, it “whimpered into the close,” and ended the day largely unchanged, a source said.

There was heavy ETF trading on Thursday with names printing at absurdly high levels as cash continued to flood the space.

KAR Auction Services, Inc.’s 5 1/8% senior notes due 2025 was one of the issues benefitting from the seller’s market, a source said.

Royal Caribbean Cruises Ltd.’s senior notes also saw a massive run on the week.

Several recent issues continued to see heavy volume.

However, Macy's Inc.’s 8 3/8% senior notes due 2025 (Ba1/BB-/BB+) were trading off their highs on Thursday after ripping out of the gate.

DaVita Inc.’s 4 5/8% senior notes due 2030 (Ba3/B+) were also losing steam in active trading.

High-yield mutual and exchange-traded funds continued to have a massive influx of cash with $6.318 billion entering the space in the week through Wednesday’s close, according to Refinitiv Lipper US Fund Flows.

A busy Thursday

Diversified Healthcare Trust priced an upsized $1 billion issue of five-year senior notes (Ba1/BB+) at par to yield 9¾%.

The issue size increased from $500 million.

The yield printed at the wide end of the 9½% to 9¾% yield talk.

The deal was heard to be playing to $2 billion of orders at 3:40 p.m. ET Thursday, a trader said.

Molina Healthcare priced an $800 million issue of eight-year senior notes (B2/BB-) at par to yield 4 3/8%.

The yield printed at the tight end of yield talk in the 4½% area. Initial talk was in the 4¾% area.

Ardagh priced an upsized $715 million add-on to their 4 1/8% senior secured notes due Aug. 15, 2026 (B1/BB/BB+) at 100.5.

The notes come with a 3.995% yield to worst and a 4.03% yield to maturity.

The issue size increased from $400 million.

The issue priced at the rich end of the 100 to 100.5 price talk. Initial talk was 99.5 to 100.

The add-on came just two days after the same issuer priced $1 billion of notes mirroring the Ardagh Packaging Finance and Ardagh Holdings USA 5¼% senior notes due Aug. 15, 2027 (Caa1/B/B).

Ortho-Clinical Diagnostics priced a $400 million issue of five-year senior notes (Caa2/CCC) at par to yield 7 3/8%.

The yield printed at the tight end of yield talk in the 7½% area. Initial talk had the notes coming to yield in the low 8% area.

The order book was heard to have contained $2 billion of orders from 102 accounts at 12:30 p.m. ET, a trader said.

In the only deal that was in the market before Thursday's open, INTL FCStone priced a $350 million issue of 8 5/8% five-year senior secured notes (Ba3/BB-) at 98.5 to yield 9%.

The coupon came 12.5 basis points through the 8¾% to 9% coupon talk. The price came rich to discount talk in the two points area. The yield came 25 bps inside of 9¼% to 9½% guidance.

The deal was heard to be playing to $1.5 billion of orders on Thursday morning, a trader said.

And Qorvo Inc. priced an upsized $300 million add-on to its 4 3/8% senior notes due 2029 (Ba1/BB+) at 102.25 in a drive-by.

The issue size increased from $250 million.

The price came rich to the 101.5 to 102 price talk.

In Europe, Wienerberger AG priced an upsized €400 million issue of 2¾% five-year senior notes (expected Ba1) at a discount to yield 2 7/8%.

The yield printed at the tight end of the 2 7/8% to 3% final yield talk, which was revised from earlier talk of 3% to 3 1/8%. Initial talk was in the 3 3/8% area.

The deal, which was upsized from €300 million, played to €1 billion of orders, the source said.

Wesco for Friday

Wesco Distribution set price talk in its $2.825 billion two-part offering of senior notes (B2/BB-/BB-), a deal set to price Friday.

The deal includes $1.825 billion of five-year notes talked to yield 7 1/8% to 7 3/8%, tight to initial guidance in the mid 7% area.

Wesco is also selling $1 billion of eight-year notes talked in the 7 5/8% area, tight to initial guidance in the high 7% area.

A seller’s market

With a massive influx of cash and the support of the Federal Reserve Board, the high-yield secondary space “is definitely a seller’s market,” a source said. “There’s massive buying.”

Names were beginning to trade at “silly levels,” with issues that should only be up about 1 point gaining 3 to 5 points, a source said.

KAR Auction’s 5 1/8% senior notes due 2025 should trade at the 92 level, a source said. However, they were quoted as high as 95 on Thursday.

Royal Caribbean Cruises’ 3.7% senior notes due 2028 were up another 3¼ points to close Thursday at 68¼, a source said.

The 3.7% notes gained more than 10 points on the week.

The cruise line’s 5¼% senior notes due 2022 were up 6 points to 83 on Thursday.

Liquidity pressure had all but disappeared in the secondary space with names that have not moved in a while, such as Golden Nugget Inc.’s 6¾% senior notes due 2024, suddenly getting kicked around, a source said.

Optimism over the reopening of the economy combined with the perpetual bid of the Federal Reserve were changing the technicals of the secondary space, a source said.

Macy’s fades

Macy’s 8 3/8% senior notes due 2025 remained in focus in the secondary space. However, the notes were trading off of their highs on Thursday.

The 8 3/8% notes “ripped right after pricing,” a source said. There was some buying of the notes at 103 on Wednesday.

The 8 3/8% notes also started strong on Thursday at 102½ bid. However, they faded as the session progressed.

The notes were seen at 102 bid heading into the market close.

The bonds had more than $104 million in reported volume during Thursday’s session.

Macy’s deal played to massive demand with the book more than 5x oversubscribed, a source said.

The demand followed the notes into the secondary space with accounts trying to get to their desired allocations and paying up for it, the source said.

However, that initial pop faded on Thursday.

The secured notes had a solid coupon and good collateral with the notes backed by some of the retailer’s larger properties, sources said in explanation of the demand for the notes.

Macy’s priced an upsized $1.3 billion issue of the 8 3/8% notes at par on Thursday.

The initial size of the deal was $1.1 billion.

The yield printed tighter than the 8½% to 8¾% yield talk.

DaVita weakens

DaVita’s recently priced 4 5/8% senior notes due 2030 were also losing steam in secondary activity.

The notes dropped 3/8 point to close Thursday at par, a source said.

The 4 5/8% notes continued to trade at a high volume with more than $57 million on the tape by the late afternoon.

DaVita priced a $1.75 billion issue of the 4 5/8% notes at par on Tuesday.

$193 million Wednesday inflows

The dedicated high-yield bond funds saw $193 million of net daily inflows on Wednesday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds saw a healthy $565 million of inflows on the day.

However high-yield ETFs sustained $372 million of outflows on Wednesday, the source said.

Late Thursday the market heard that the combined high-yield funds saw a whopping $6.318 billion of net inflows for the week to Wednesday's close, according to Lipper US Fund Flows.

Despite the fact that the most recent reporting week encompassed the extended Memorial Day holiday weekend, and was thus comprised of just four sessions rather than five sessions which customarily make up a reporting period, it was nevertheless the third biggest weekly inflow on record, according to the market source.

Indexes gain

Indexes continued to gain on Thursday.

The KDP High Yield Daily index was up 16 basis points to close Thursday at 64.81 with the yield now 6.8%.

The index was up 54 bps on Wednesday and 45 bps on Tuesday.

The ICE BofAML US High Yield index gained 41.3 bps with the year-to-date return now negative 5.642%.

The index was up 36.8 bps on Wednesday after jumping 97.8 bps on Tuesday.

The CDX High Yield 30 index was up 26 bps to close Thursday at 97.75. The index gained 84 bps on Wednesday after jumping 171 bps on Tuesday.

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