SPX Flow on tap; secondary sell-off intensifies; AAL under pressure; Transocean gains; Bed Bath up

By Abigail W. Adams

Portland, Me., March 7 – The domestic high-yield primary market saw another quiet session as volatility continued to roil risk assets on Monday.

However, there were signs of life with one addition to the forward calendar.

Redwood Star Merger Sub. Inc. (SPX Flow Inc.) started a roadshow for a $570 million offering of eight-year non-call three-year senior notes (Caa2/CCC) that will run until March 17.

While the new-issue calendar has been largely sidelined by the volatility in the market, there are deals in the pipeline, sources said.

Some estimate new-deal volume to hit $5 to $7 billion in the coming week. However, issuers are waiting for the market to stabilize.

And there were no signs of stability during Monday’s session.

The secondary space opened the day down 1/8 to ¼ with selling intensifying as the session progressed. The market was down ¾ to 7/8 point heading into the market close, a source said.

The situation in the Ukraine, surging crude oil futures and its impact on inflation remained the primary focus of the market.

Airlines and travel names were under pressure amid skyrocketing crude oil futures.

American Airlines, Inc.’s junk bonds sank 2 to 5 points in active trading.

Carnival Corp.’s junk bonds were also taking a hit.

While the surge in crude oil futures were dragging down one part of the high-yield market, energy credits were the outperformers of Monday’s session.

Transocean Inc.’s junk bonds gained 1 to 3 points in active trading.

While the broader market was under pressure on Monday, Bed Bath & Beyond Inc.’s 5.165% senior notes due 2044 also outperformed with the notes gaining more than 3 points following news the Chewy Inc. co-founder had taken a stake in the company.

Monday’s primary

The domestic high-yield primary market remained quiet on Monday although there remains hope for the new issue market with some estimating $5 to $7 billion in new supply could come over the week.

However, the new supply did not materialize on Monday as selling pressure continued to drag down the market.

However, there was an addition to the forward calendar.

In the latest leveraged buyout financing to hit the market, Redwood Star Merger Sub. Inc. (SPX Flow Inc.) started a roadshow for a $570 million offering of eight-year non-call three-year senior notes (Caa2/CCC) that will run through March 17.

Early guidance for the leveraged buyout deal is for a yield in the high 8% to 9% area, according to a market sources.

Proceeds, together with cash on hand, borrowings under the senior secured credit facility and proceeds from equity will be used to support Lone Star Funds’ acquisition of SPX Flow.

Travel names under pressure

While surging crude oil futures were bolstering several distressed energy credits, they were the travel sector.

American Airlines junk bonds were down 2 to 5 points in active trading on Monday with surging crude oil futures expected to squeeze its already tight margins, a source said.

American Airlines’ 5½% senior notes due 2026 were the most active in the capital structure.

The 5½% notes fell 1 7/8 point to close the day at 98¾, according to a market source.

There was $26 million in reported volume.

American Airlines 5¾% senior notes due 2029 fell 2¾ point to 98 3/8, a source said. There was $16 million in reported volume.

American Airlines 11¾% senior notes due 2025 sank 5 points to close the day at 113½, according to a market source.

The 11¾% notes opened the day on a 117-handle and moved straight down as the session progressed, a source said.

Cruise line operators were also getting hammered by surging oil prices.

Carnival’s 6% senior notes due 2029 sank 2½ points to close Monday at 91, according to a market source.

There was $20 million in reported volume.

Carnival’s 5¾% senior notes due 2027 fell 3½ points to 91¾.

Transocean gains

While surging crude oil futures pressured the broader high yield market, energy credits continued to outperform.

Offshore drilling contractor Transocean continued to see its junk bonds improve amid speculation oil and gas companies will be asked to boost production, a source said.

Transocean’s 11½% senior notes due 2027 were the most active in the capital structure. The notes gained 1¾ points to close the day at 103½.

There was $20 million in reported volume.

The 8% senior notes due 2027 rose 3 points to 81¼.

The 6.8% senior notes due 2038 gained 2¾ point to 63.

Crude oil futures continued to surge on Monday as more lawmakers call for sanctions on Russian oil companies.

WTI crude oil futures traded as high as $130.50 on Monday before coming in to settle at $119.40, an increase of $3.72 or 3.22%.

Brent crude oil futures jumped as high as $139.13 before coming in to settle at $124.53, an increase of $6.42 or 5.44%.

Bed Bath & Beyond gains

While the overall market was down on Monday, topical news catapulted Bed Bath & Beyond’s 5.165% senior notes due 2044 up 3 points.

The 5.165% senior notes were trading “all over the place,” a source said.

The notes gained as much as 6 point to trade up to 78 early in Monday’s session.

However, they came in as the session progressed and stood poised to close the day up 3 points on a 75-handle.

The notes were active with more than $12 million in reported volume.

Bed Bath & Beyond’s junk bonds soared following news that Chewy co-founder Ryan Cohen had taken a 9.8% stake in the company through RC Ventures.

Cohen is also chair of GameStop.

Fund flows

Fund flows were mixed on Friday, according to the most recent data available. ETFs saw $496 million of outflows while actively managed funds saw inflows of $27 million.

Indexes

The KDP High Yield Daily index fell 21 points to close Monday at 62.23 with the yield now 5.28%.

The index posted a cumulative loss of 5 points on the week last week.

The CDX High Yield 30 index fell to a 103-handle on Monday after closing Friday on a 104-handle.

The index sank 82 bps to close Monday at 103.6.

The index posted a cumulative loss of 143 bps on the week last week.

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