MGM, NRG upsize; new paper in focus; Rackspace outperforms; GFL, Meritor at a premium

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 17 – MGM Growth Properties Operating Partnership LP and NRG Energy, Inc. were the issuers of the day in the junk bond primary market on Tuesday.

Both issuers sold offerings that were upsized and priced at the low end of talk.

In the secondary, the market was slightly heavy at the open with futures down, however buyers came in as the session progressed, turning Tuesday into a sidewise day, sources said.

New paper dominated the tape with recent deals continuing to perform well in the aftermarket.

However, with several deals quickly trading up to a 101- and 102-handle, not much more capital appreciation was expected.

“All these deals get tight so quickly, it takes the fun out of it,” a source said.

Rackspace Technology Global Inc.’s 5 3/8% senior notes due 2028 (Caa1/B-) were the strongest of the recent deals with the notes climbing to a 102-handle.

Meritor Inc.’s 4½% senior notes due 2028 (B1/BB-/BB-) were also putting in a strong performance with the notes on a 101-handle.

While Hilton Worldwide Holdings Inc.’s two tranches of senior notes (Ba2/BB) were both trading with a premium in the secondary space, the longer duration notes traded almost 1 point higher than the shorter duration notes.

While the notes failed to break par, GFL Environmental, Inc.’s 4% senior notes due 2028 (B3/B-) were trading at a premium to their discounted issue price.

NRG and MGM

NRG Energy, Inc. upsized the two junk tranches of its megadeal on Tuesday, and priced both tranches inside of talk.

A $1.03 billion amount of 10.25-year notes priced at par to yield 3 5/8%. The yield printed 12.5 basis points inside of the 3¾% to 4% yield talk. Initial guidance was 4%.

A $500 million amount of 8.25-year notes priced at par to yield 3 3/8%. The 8.25-year notes also came 12.5 bps inside of yield talk, which was 3½% to 3¾%. Initial guidance had the 8.25-year notes coming to yield 25 basis points inside of the 10.25-year notes.

The junk portion of the financing was increased to $1.53 billion from $1.465 billion.

Elsewhere Tuesday, MGM Growth Properties Operating Partnership LP priced an upsized $750 million issue of 8.5-year senior bullet notes (B1/BB-/BB+) at par to yield 3 7/8% in a drive-by.

The issue size increased from $500 million.

The yield printed at the tight end of yield talk in the 4% area. Initial talk was in the low 4% area.

Looking ahead

Meanwhile the active calendar grew.

Ancestry, the online family history services provider, started a roadshow on Tuesday for a $1 billion two-part offering.

The deal includes $450 million of 7.5-year senior first-lien notes (B1/B) with initial talk in the low-to-mid 5% area.

It also includes $550 million of eight-year senior unsecured notes (Caa1/CCC+) with initial talk in the mid-to-high 7% area.

Double Eagle III Midco 1 LLC kicked off a $650 million offering of five-year senior notes (expected ratings B3/B/BB-).

And American Bath Group started a roadshow for a $335 million offering of eight-year senior notes (existing ratings Caa2/CCC+), with initial guidance in the 8% area (see related stories in this issue).

Rackspace outperforms

Rackspace’s 5 3/8% senior notes due 2028 outperformed in the secondary space with the notes climbing to a 102-handle on Tuesday.

The notes were marked at 102 3/8 bid, 102¾ offered in the late afternoon, a source said.

Another source saw them at 102 7/8 heading into the market close.

There was more than $74 million in reported volume during Tuesday’s session.

While the unsecured notes were rated triple-C by Moody’s Investors Service, the rating agency lifted the managed cloud services company’s outlook to stable from negative, due to the successful IPO of Rackspace’s parent company, Prospect News reported.

Rackspace priced a $550 million issue of the 5 3/8% notes at par in a Monday drive-by.

The yield printed tighter than the 5½% to 5¾% yield talk. Initial talk was in the high 5% to 6% area.

Hilton’s tale of two tranches

Hilton’s two tranches of senior notes were putting in solid performances in the secondary space.

However, the hospitality company’s longer duration notes outperformed the shorter duration notes, which sources attributed to the higher yield.

Hilton’s 4% senior notes due 2031 climbed to a 101-handle with the notes poised to close the day at 101 3/8, a source said.

There was more than $64 million in reported volume heading into the close.

Hilton’s 3¾% notes due 2029, however, were trading with a nominal premium with the notes changing hands in the par ¼ to par 3/8 context throughout Tuesday’s session, a source said.

The bonds had more than $56 million in reported volume.

Hilton priced an $800 million tranche of the 3¾% notes and a $1.1 billion tranche of the 4% notes at par on Monday.

The 3¾% notes priced at the wide end of the 3½% to 3¾% yield talk. Initial talk was in the high 3% area.

The 4% notes priced at the wide end of the 3¾% to 4% yield talk. Initial talk was 4%.

The deal was upsized from $1 billion.

Meritor active

Meritor’s 4½% notes were also putting in a strong performance on Tuesday with the notes on a 101-handle.

They were marked at 101¼ bid, 101 5/8 offered, a source said.

While the issue was small, the notes were active with $38 million on the tape heading into the close.

Meritor priced a $275 million issue of the 4½% notes at par in a Monday drive-by.

The yield printed tighter than the 4¾% to 5% price talk. Initial talk was in the low 5% area.

GFL at a premium

GFL’s 4% senior notes due 2028 continued to tick higher in active trading on Tuesday.

The notes were marked at 99¾ bid, 99 7/8 offered in the late afternoon, an increase of about 1/8 point from Monday’s close, a source said.

The bonds had more than $61 million in reported volume during Tuesday’s session.

While the notes failed to break par, they were trading at a premium to their discounted issue price.

The serial issuer of junk bonds priced an upsized $500 million, from $400 million, issue of the 4% notes at 99.171 to yield 4 1/8% in a Monday drive-by.

The yield printed tighter than the 4¼% to 4½% yield talk. Initial talk was in the high 4% area.

$203 million Monday inflows

The dedicated high-yield bond funds had $203 million of net daily inflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $128 million of inflows on the day.

Actively managed high-yield funds had $75 million of inflows on Monday, the source said.

Indexes mixed

Indexes were mixed on Tuesday with some posting nominal gains and others nominal losses after all launched the week on strong footing.

The KDP High Yield Daily index added 2 points to close Tuesday at 67.53 with the yield now 5.05%.

The index gained 14 points on Monday.

The ICE BofAML US High Yield index continued to rise above the 3% threshold on Tuesday after again breaking through it on Monday.

The index gained 11.5 bps with the year-to-date return now 3.245%.

The index was up 36.6 bps on Monday.

The CDX High Yield 30 index shaved off 9 bps to close Tuesday at 107.78.

The index rose 75 bps on Monday.

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