Secondary erases gains; Charter in focus; Scientific Games, Golden Nugget tank; funds see record outflows

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 11 – The domestic high-yield primary market remained closed on Wednesday with pricing near impossible in the face of the tumult caused by the coronavirus and negative cash flows, sources said.

The dedicated high-yield bond funds saw one of the largest daily outflows on record on Tuesday with $3.3 billion leaving the space.

The wild ride in the secondary space continued with the market reversing course and dropping several points, erasing the gains from the previous session, a market source said.

“Everything’s for sale,” a market source said.

Charter Communications Inc.’s recently priced 4½% senior notes due 2032 were in focus with the notes again dropping below par after popping above in the previous session.

Zayo Group Holdings Inc.’s senior notes that priced as part of the company’s leveraged buyout also erased their gains from the previous session.

Scientific Games Corp.’s and Golden Nugget, Inc.’s junk bonds were among the casualties of Wednesday’s session with the gaming sector in general hard hit by the coronavirus.

Primary closed

Against the backdrop of negative cash flows, with market sources saying that some junk funds are being hit with redemptions, added to the tumult of the coronavirus pandemic, pricing risk assets becomes difficult bordering on impossible, syndicate sources say.

Once the global capital markets regain their footing, leading to some semblance of stability, it may not take the new issue market long to regenerate, sources say.

However, no one suggested that such a footing was anywhere near at hand on Wednesday.

One announced deal, the Del Monte Foods Inc. $575 million offer of seven-year senior secured notes (Caa2/CCC+), has gone quiet, sources say.

Charter in focus

Charter’s recently priced 4½% notes due 2032 were in focus on Wednesday with the notes erasing their gains from the previous session.

The 4½% notes again dropped below par after popping above on Wednesday.

The notes were down about 1½ points and stood poised to close the day at 98½, according to a market source.

With more than $63 million in reported volume, the 4½% notes were the most actively traded in the secondary space.

Charter’s 4½% notes due 2032 were one of the last deals to price before the dramatic repricing of the secondary space.

Charter priced a $1.4 billion tranche of the 4 ½% notes at par on March 4 as part of a $2.5 billion megadeal that also included an add-on to its 4½% notes due 2030, which priced at 102½ .

The notes initially performed well despite the downturn of the market immediately after pricing.

The notes closed out last week at 101, a source said.

While less active, Charter’s 4½% senior notes due 2032 also erased their previous gains with the notes poised to close Wednesday at 99, according to a market source.

Zayo erases gains

Zayo’s 4% senior secured notes due 2027 were again active in the secondary space. However, the notes erased their gains from the previous session.

The 4% notes dropped 1½ points to 96 5/8 in the late afternoon, according to a market source.

The 4% notes traded north of 98 on Wednesday.

While less active, Zayo’s 6 1/8% senior unsecured notes due 2028 dropped 1¼ point to close Wednesday at 97½.

The 6 1/8% notes were also on the rise during Tuesday’s session with the notes up more than 2 points to 99.

Zayo’s notes were on the rise on Tuesday alongside the broader market and on the heels of the closing of its $14.3 billion acquisition by Digital Colony Partners and EQT Partners.

Zayo priced a $2.58 billion two-tranche offering on Feb. 20 to fund, in part, the leveraged buyout of the company.

The deal included a $1.5 billion tranche of the 4% notes and a $1.08 billion tranche of the 6 1/8% notes, both of which priced at par.

The gaming sector

Scientific Games’ and Golden Nugget’s senior notes were among the casualties of Wednesday’s session, with risk assets once again selling off after the World Health Organization officially labeled the coronavirus a pandemic.

Scientific Games’ 8¼% senior notes due 2026 dropped 6¼ points to 82 in high-volume activity.

The bonds saw more than $25 million in reported volume.

Scientific Games’ 7¼% senior notes due 2029 were down 8½ points to 72½.

The Las Vegas-based gambling services and products company’s 7% senior notes due 2028 dropped 7½ points to 72½.

Golden Nugget’s 6¾% senior notes due 2024 dropped 7 5/8 points to 86 3/8.

The notes were changing hands at par ½ at the beginning of the month, according to a market source.

Scientific Games and Golden Nugget recently announced an expansion of their sports wagering partnership with plans to introduce Scientific Games mobile gaming product Opengaming and OpenSports to multiple states.

The gaming sector has been particularly hard hit by the coronavirus with tourism to casinos dropping.

Outflows

The dedicated high-yield bond funds sustained a massive $3.3 billion of daily outflows on Tuesday, according to a market source who characterized the daily outflow as one of the biggest on record, and very broad-based.

High-yield ETFs saw $1.1 billion of outflows on the day.

Actively managed high-yield funds sustained $2.2 billion of outflows on Tuesday, the source said.

With only Wednesday's pending fund flow totals remaining to go in the tally, the combined funds are tracking $4.8 billion of outflows for the week that will conclude with Wednesday's close, according to the market source.

Should it materialize it would be the first time the combined funds have sustained three consecutive outflows of greater than $4 billion, sources say.

In the week to the March 4 close the combined high-yield funds saw $5.126 billion of outflows, according to information reported by Lipper US Fund Flows.

The prior week, to the Wednesday, Feb. 26 close, the funds sustained $4.198 billion of outflows, Lipper reported.

By way of contrast, in 2019, a year which saw high-yield bonds generate returns of greater than 14%, the combined junk funds saw $18.8 billion of net inflows.

Indexes erase gains

Indexes erased their gains from the previous session, deepening their losses on the week.

The KDP High Yield Daily index dropped 83 points to close Wednesday at 65.79 with the yield now 6.71%.

The index gained 74 bps on Tuesday after dropping 2.96 bps on Monday.

The ICE BofAML US High Yield index sank 113.5 bps with the year-to-date return now negative 6.355%.

The index gained 31.2 bps on Tuesday after plummeting 353.8 bps on Monday when returns crashed past the negative 5% threshold.

They were in positive territory as recently as last week.

The CDX High Yield 30 index plummeted 222 bps to close Wednesday at 96.40. The index gained 75 bps on Tuesday after plunging 454 bps on Monday.

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