Primary prices massive $5.45 billion; Kraton active; LifePoint drops below par

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 8 – The junk bond primary market had a torrent of new deals on Tuesday, rising to and beyond the market’s general expectation of steady, strong issuance before an anticipated and probable lull at the end of December.

Nine tranches priced for a total of $5.45 billion in the domestic market during the day.

Meanwhile, the secondary space was beginning to show signs of weakness on Tuesday with sellers outnumbering buyers.

However, volume was relatively light as market players awaited Tuesday’s onslaught of new paper and the space closed the day largely unchanged, a source said.

Kraton Corp.’s new 4¼% senior notes due 2025 (existing ratings B2/BB-) continued to perform well following a strong break with the notes holding on to their strong premium.

However, LifePoint Health, Inc.’s recently priced 5 3/8% senior notes due January 2029 (Caa1/CCC+) dropped firmly below par in active trading.

Occidental Petroleum’s 6 5/8% senior notes due 2030 were coming in on the heels of the fallen angel’s latest offering.

Primary

A massive Tuesday in the high yield new issue market saw eight issuers price nine dollar-denominated tranches of junk with a face amount of $5.45 billion.

Five of those eight issuers upsized their deals.

Executions were ultrasharp, with three tranches coming inside of talk, five coming at the tight ends of talk and one coming on top of talk that had been revised tighter (see stories in this issue).

Kraton holds

Kraton’s 4¼% senior notes due 2025 continued to hold on to their large premium in active trading on Tuesday following a strong break the previous session.

The notes continued to trade on a 101-handle and stood poised to close the day at 101½, according to a market source.

The notes were active with more than $26 million in reported volume heading into the market close.

The notes jumped to a 101-handle shortly after breaking for trade, closing the previous session at 101¼.

They carried a decent coupon given the market, a source said.

Kraton priced a $400 million issue of the 4¼% notes at par in a Monday drive-by.

Pricing came at the tight end of the 4¼% to 4½% yield talk. Initial guidance was 4½% to 4¾%.

LifePoint below par

LifePoint’s 5 3/8% senior notes due 2029 dropped firmly below par in active trading on Tuesday after spending most of their existence flat.

The notes were changing hands in the 99¼ to 99¾ context throughout the session and stood poised to close the day at 99 5/8, sources said.

There was more than $17 million on the tape heading into the market close.

The health care provider’s 5 3/8% notes initially saw a strong break and traded as high as par 5/8 after breaking for trade on Nov. 30.

However, the notes quickly lost steam and have been largely wrapped around par since pricing.

While the notes were in demand during bookbuilding, their lackluster performance in the secondary space was indicative of the caution surrounding CCC credits, a source said.

The notes were particularly hard hit on Tuesday as the market began to show signs of weakness.

Occidental comes in

As market players awaited Occidental Petroleum Corp.’s latest offering, the fallen angel’s 6 5/8% senior notes due 2030 were trading down in active trading.

The notes dropped 1¾ points to close the day at 106 for a yield of 5.775%, according to a market source.

Investors were most likely rotating out of the old notes to participate in the new offering with the new notes cheaper on a relative basis, a source said.

Monday flows

High-yield ETFs sustained $359 million of outflows on Monday, the most recent session for which data was available at press time, according to a market source.

Actively managed funds had $120 million of inflows on the day.

Indexes

Indexes were again mixed on Tuesday.

The KDP High Yield Daily index was up 2 points to close the day at 68.54 with the yield now 4.53%.

The index was up 8 points on Monday.

The ICE BofAML US High Yield index gained another 7.8 bps with the year-to-date return now 5.237%.

The index was up 12 bps on Monday, climbing further above 5% returns after shooting past the threshold last Friday.

The CDX High Yield 30 index dropped 22 bps to close Tuesday at 199.24. The index shaved off 11 bps on Monday.

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