Sabre prices drive-by, sees strong break; Rakuten on deck; retail names improve; Gap gains continue

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 21 – The domestic high-yield primary market churned out one deal on Monday – Sabre Corp.’s upsized $555 million issue of five-year senior secured notes (Ba3/B), which came at a discount.

Tokyo-based Rakuten Group, Inc. is on deck with a $500 million offering of two-year senior notes (S&P: BB+) slated to price on Tuesday.

Pegasus Merger Co./Tenneco Inc.’s $1 billion offering of six-year senior secured notes (B2/B-) remains on the forward calendar with the deal heard to be facing significant headwinds.

Meanwhile, it was a sideways day in the secondary space with the cash bond market largely unchanged in light volume as the dovish pivot rally sparked by softer-than-expected inflation reports continued to falter.

While stronger-than-expected retail sales figures and retail earnings last week threw cold water on the rally that lifted the broader market, retail names continued to add after a strong performance the previous week.

Gap Inc.’s senior notes (Ba3/BB) continued to improve after the strong gains made following earnings last Friday.

Macy's Retail Holdings LLC’s senior notes (Ba2/BB) also continued to inch higher after strong earnings the previous week.

Sabre prices

Sabre GLBL Inc., a wholly owned subsidiary of Sabre Corp., priced Monday's only deal, an upsized $555 million issue (from $535 million) of 11¼% five-year senior secured notes (Ba3/B) at 98.134 to yield 11¾% in a drive-by.

Orders for the deal exceeded $1 billion, according to a sellside source who had the new Sabre GLBL 11¼% secured notes trading at 99¾ bid, par ¼ offered, late Monday.

Reverse inquiry exceeded the original amount of the deal, the sellsider said.

Forward calendar eyed

Elsewhere Tokyo-based Rakuten Group talked its $500 million offering of two-year senior notes (S&P: BB+) to price at a discount, and to yield in the 12% area.

The deal is set to price on Tuesday.

There has been a significant number of indications of interest across Asia, Europe and the United States, according to a source close to the deal.

High-yield accounts in the U.S. represent a significant presence in the offer, sources say.

Meanwhile, Monday brought no fresh news on the Pegasus Merger Co./Tenneco $1 billion offering of six-year senior secured notes (B2/B-) backing the buyout of Tenneco by Apollo, which is still believed to be in the market.

That buyout was completed last Thursday, with the investment banks ponying up their committed financing, even though the bonds and the $1.4 billion term loan continue to await syndication.

The bond deal, which was announced at the beginning of November, is facing serious headwinds, market source say.

The Rakuten and Pegasus/Tenneco deals comprised the entirety of the active dollar-denominated high-yield new-issue calendar at Monday's close.

It is not likely that there will be additional drive-by business in Tuesday's full market session, or the abbreviated session ahead of Wednesday's early close in the bond market in the U.S., ahead of the extended Thanksgiving holiday weekend, a sellside source said late Monday.

Post-Thanksgiving new issue activity is expected to increase, sources say.

However, a big finish to 2022 does not seem likely, according to a high yield portfolio manager.

Unless there is a good reason to come in the final weeks of the year, dealers will likely be inclined to advise issuers to await the new year, the investor said.

One mitigating factor would be issuers being propelled into market by a large amount of reverse inquiry, the source said.

Recall that Monday's Sabre deal was said to be driven on reverse inquiry that exceeded the original amount of the offering.

Retail rises

While strong retail numbers helped cool the dovish pivot rally that propelled the market higher early last week, strong retail sales figures and better-than-expected earnings have bolstered retail names in the secondary space.

Gap’s senior notes continued to improve after a strong performance last Friday.

The clothing retailer’s 3 5/8% senior notes due 2029 rose another ¼ to ½ point with the notes now on a 75-handle.

The notes were changing hands in the 75 3/8 to 75 5/8 context heading into the market close, according to a market source.

The yield was 8 3/8%.

The 3 5/8% notes shot up 4 points last Friday after a large earnings beat.

Gap’s 3 7/8% senior notes due 2031 jumped 1 point in thin volume with the notes closing Monday at 73 7/8 with the yield just north of 8%.

The notes climbed 2 points last Friday.

Macy’s senior notes also continued to inch higher amid the recent strength of the sector.

Macy’s 5 7/8% senior notes due 2030 gained another ½ point to rise to an 87-handle.

The notes were changing hands in the 87¼ to 87¾ context on Monday.

They climbed about 2 points last Friday.

Macy’s 6 1/8% senior notes due 2032 were largely unchanged with the notes remaining in the 84½ to 85 context on Monday.

The notes rose about 3 points last Friday.

Strong earnings and healthy retail sales figures helped drive up the sector.

However, strong retail sales figures also caused the market to double think the dovish pivot rally that lifted the broader market to its recent height, a source said.

The secondary space’s rally paused last Wednesday after October retail sales saw the largest increase in nearly eight months, sources said.

ETFs see $682 million Friday inflows

High-yield ETFs saw a hefty $682 million of daily cash inflows on Friday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds were negative on the day, as they sustained $280 million of outflows on Friday, the source said.

The combined funds are tracking $1.7 billion of net inflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index slipped 5 points to close Monday at 51.77 with the yield 7.52%.

The CDX High Yield 30 index inched up 4 bps to close Monday at 100.79.

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