Junk: LGI Homes outperforms; American Air adds; Veritiv struggles; Uber up on refinancing

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 20 – The junk bond primary market put up a goose egg on Monday.

The active calendar was empty at the close of the session.

Although new issue activity is possible on Tuesday and Wednesday, ahead of the Thanksgiving holiday on Thursday, such activity is unlikely, sources say.

The high-yield deal machine is apt to idle into the post-Thanksgiving week, when it is expected to resume in earnest.

Activity in the runup to year-end is expected to continue the comparatively vigorous pace seen through the month of November, sources say.

The junk primary market could put up $10 billion of post-Thanksgiving issuance, through the end of 2023, a debt capital markets banker reckoned.

Meanwhile, the secondary space remained firm on Monday with the cash bond market adding another 1/8 to ¼ point after strong gains in the previous week.

While the secondary space was active with new paper and topical news driving activity, liquidity in the market is expected to thin as the Thanksgiving holiday in the United States on Thursday approaches, a source said.

New issue aftermarket performance has varied since pricing tightened after the dramatic post-CPI rate move of last week.

While some issues have performed well and traded with nominal premiums, the majority have struggled and traded below issue prices.

LGI Homes, Inc.’s 8¾% senior notes due 2028 (Ba2/BB-) was an outperformer among recent issues with the notes continuing to gain in active trade on Monday.

American Airlines, Inc.’s new 8½% secured notes due 2029 (Ba2/BB/BB-) were flat on the break but made gains during Monday’s session with the notes now trading at a solid premium to their issue price.

However, Verde Purchaser, LLC’s 10½% senior secured notes due 2030 (B2/B+) backing the buyout of Veritiv Corp. sank lower in active trade.

Uber Technologies Inc.’s 7½% senior notes due 2025 (B1/B+) were on the rise after the company launched a convertible notes offering with proceeds to be used to redeem the 2025 notes.

LGI Homes outperforms

LGI Homes’ 8¾% senior notes due 2028 were notable outperformers of recent deals with the notes continuing to gain on Monday.

The 8¾% notes added ¼ point with the notes trading in the par ¾ to 101¼ context heading into the market close, a source said.

There was $16 million in reported volume.

LGI priced a $400 million issue of the 8¾% notes at par on Friday.

The yield came at the tight end of the 8¾% to 9% yield talk.

American gains

American Airlines’ new 8½% senior secured notes due 2029 made solid gains in active trade on Monday after a lackluster break the previous session.

The 8½% notes added ¼ to ½ point with the notes trading in the par ¼ to par ¾ context throughout the session, a source said.

There was $47 million in reported volume.

American Airlines priced an upsized $1 billion, from $750 million, issue of the 8½% notes at par on Friday.

The yield came at the tight end of the 8½% to 8¾% yield talk.

While the notes played to strong demand during bookbuilding, they were flat on the break and closed last Friday wrapped around par.

Verde/Veritiv sags

Veritiv’s 10½% senior secured notes due 2030 continued to struggle on Monday with the notes sinking further below their issue price in heavy volume.

The 10½% notes fell ½ to ¾ point.

They were trading in the 99 to 99¼ context heading into the market close, a source said.

There was $29 million in reported volume.

The notes had a weak break last Friday and closed the day in the 99¾ to par context.

While carrying a hefty yield, the offering was a leveraged buyout deal and weaker credits continued to get shunned by investors, a source said.

Verde Purchaser priced an upsized $700 million, from $600 million, issue of the 10½% notes on Friday.

The yield printed in the middle of yield talk in the 10½% area.

Uber rises

Uber’s 7½% senior notes due 2025 were making gains in active trade after the company launched a convertible notes offering with proceeds to be used to refinance the notes.

The 7½% notes added ½ to 5/8 point on the news.

They closed the day in the 101½ to 101 5/8 context, a source said.

There was $36 million in reported volume.

The notes were trading up to their call price, a source said.

The 7½% notes are callable at 101 7/8 until May 2024.

Fund flows

The dedicated high-yield bond funds had $193 million of net daily cash outflows on Friday, according to a market source.

High-yield ETFs sustained $168 million of outflows on the day.

Actively managed high-yield funds had $25 million of outflows on Friday, the source said.

Friday’s outflows come on the heels of historically strong cash inflows during the mid-autumn period, market sources say.

The combined funds had $10.7 billion of net inflows in the two weeks that ended Nov. 15, the second-largest inflow for a two-week interval on record, according to the market source who added that the biggest-ever fortnight on record, the two weeks concluding June 3, 2020, had $12.1 billion of net inflows.

Indexes

The KDP High Yield Daily index added 11 basis points to close Monday at 49.3 with the yield now 7.63%.

The index gained 54 bps on the week last week.

The ICE BofAML US High Yield index added 27.8 bps with the year-to-date return now 8.092%.

The index gained 95.9 bps on the week last week.

The CDX High Yield 30 index gained 33 bps to close Monday at 103.6.

The index rose 83 bps on the week last week.

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