Secondary space soft; Graphic Packaging holds; Zayo, HCA weaken; Nabors trades off

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 24 – The domestic high-yield primary market was silent on Monday as coronavirus-induced volatility rocked markets.

The risk-off attitude that caused investors to flee equities in search of safe havens pervaded the secondary space with the market in general down 1 to 2 points, sources said.

While the market was soft, volume was light, the pace was orderly, and the secondary space was generally stable, a source said.

Despite their tight pricing and the market conditions, Graphic Packaging’s 3½% senior notes due 2028 (Ba2/BB+) were holding on to their slight premium.

However, some of the recent megadeals to price were not faring as well.

After a mixed performance, both of Zayo Group Holdings Inc.’s recently priced tranches were below par.

HCA Healthcare, Inc.’s 3½% senior notes due 2030 (Ba2/BB-/BB) continued their downward trajectory in active trading.

With crude oil futures down almost 4% on Monday, the energy sector was particularly hard hit.

Nabors Industries junk bonds were trading off between 1 to 3 points, sources said.

The primary

Coronavirus-related volatility all but sidelined the new-issue market as the final week in February got underway.

Should the volatility continue it could make for a quiet week, indeed, in the primary market, a sellside source said.

The J.P. Morgan Global High Yield and Leveraged Finance Conference, now underway in Miami, could also dampen issue activity in the first half of the week, the source added.

As the new week got underway at least two deals were on the road in the United States and Western Europe.

Advantage Solutions Inc. started a roadshow on Friday for $1.145 billion of notes: $345 million 6.5-year senior secured notes with initial talk in the mid-to-high 6% area, and $800 million seven-year senior unsecured notes with initial talk in the high 10% area.

And Netherlands-based geo data services provider Fugro NV was scheduled to start a roadshow on Monday in London for a €500 million offering of five-year senior secured notes.

The secondary

While volatility rocked global capital markets on Monday, volume in the secondary space was light and the sell-off that did occur was orderly, a market source said.

There was not a lot of panicked selling.

However, while the recent theme has been to buy the sell-off, that did not occur on Monday. “Things just kind of seized up,” a source said.

While there was still some buying interest, the magnitude of the sell-off in equities kept many on the sidelines.

Market players will be eyeing tomorrow’s open, a source said. Another steep drop and panic may start to set in.

Graphic Packaging holds

Graphic Packaging’s 3½% senior notes due 2028 were holding onto their slight premium in the secondary space, despite a brutal day for the markets.

The notes continued to trade in the par to par ½ context on Monday, a source said. They closed out Friday at par ½.

“They’re holding up well,” the source said.

While Friday was also a rough day for the markets, Graphic Packaging was able to upsize and price tightly.

The Atlanta-based consumer packaging manufacturer priced an upsized $450 million issue of the 3½% notes in a Friday drive-by.

The issue size increased from $400 million.

Initial price talk was in the high 3% area.

Zayo below par

While Zayo’s recently priced tranches diverged on Friday with the secured tranche trading at a discount and the unsecured tranche trading at a premium, both were below par in active trading on Monday.

Zayo’s 4% senior notes due 2027 (B1/B) dropped to a 98-handle on Monday.

They were down about 1¼ point and stood poised to close the day at 98½, according to a market source.

Zayo’s 6 1/8% senior notes due 2028 (Caa1/CCC+) lost their premium.

They were trading in the 99¼ to 99¾ context after closing out Friday at 101.

Zayo priced a $1.5 billion tranche of the 4% notes and a $1.08 billion tranche of the 6 1/8% notes at par on Feb. 20.

The deal was the first large LBO deal of 2020 with proceeds, together with proceeds from a dollar- and euro-denominated term loan, being used to help fund the leveraged buyout of Zayo by Digital Colony Partners and the EQT Infrastructure IV fund.

HCA sinks

HCA’s 3½% senior notes due 2030 sank further below par in active trading on Monday.

The 3½% notes dropped 1 point to close Monday at 98½, according to a market source.

While the notes have struggled since pricing, they have largely held at 99½.

Given the tight pricing of the notes, they were expected to sell-off if the market began to crack.

HCA priced a $2.7 billion issue of the 3½% notes at par on Feb. 11 in a deal that was upsized from $1 billion.

Nabors trades off

Nabors Industries junk bonds were active and trading off on a particularly brutal day for the energy sector with crude oil futures off almost 4%.

The global oil and gas drilling company’s 5¾% senior notes due 2025 were down 3 points in active trading, a market source said.

They were changing hands in the 80 to 80¾ context during Monday’s session.

While volume was light, Nabors recently priced 7½% senior notes due 2028 and 7¼% senior notes due 2026 were also trading off.

The 7½% notes, which were trading at a premium until last week, traded off almost 2 points to close Monday at 97½.

The 7¼% senior notes due 2026 dropped below par to close Monday at 99½, according to a market source.

The 7¼% notes closed out Friday around 101.

Nabors priced a $600 million tranche of the 7¼% notes and a $400 million tranche of the 7½% notes at par on Jan. 7.

$373 million Friday outflows

The dedicated high-yield bond funds saw $373 million of net outflows on Friday, according to an investor.

High yield ETFs sustained $418 million of outflows on the day.

Actively managed high yield funds were positive seeing $45 million of inflows on Friday, the source added.

Indexes in the red

Indexes launched the week in the red.

The KDP High Yield Daily index tumbled 39 points to close Monday at 71.19 with the yield now 5.07%.

The index posted a cumulative gain of 1 bp on the week last week.

The ICE BofAML US High Yield index sank 73.1 bps with the year-to-date return now 0.463%.

The index saw a cumulative gain of 17.6 bps on the week last week.

The CDX High Yield 30 index plummeted 141 bps to close Monday at 107.37.

The index posted a cumulative loss of 50 bps on the week last week.

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