TriNet, CDK Global price; Carnival buoyed in heavy market; Scotts Miracle-Gro clipped

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 2 – The high-yield new issue market appeared to be gaining some momentum as July gave way to August.

Since Monday (July 31) the primary market generated $2.46 billion of proceeds in four tranches, with another $1.7 billion of announced and/or telegraphed business on the forward calendar.

However, the supportive capital markets backdrop vanished, ahead of the Wednesday open, following the Tuesday announcement by Fitch Ratings that it downgraded the United States of America’s long-term foreign currency rating, sources said.

On the heels of that announcement the yield of the 10-year Treasury spiked to a year-to-date high (closing at 4.09% on Wednesday) while the S&P 500 stock index fell 1.38% on the day.

Meanwhile, it was another heavy day for the secondary space with the Fitch Ratings downgrade of the U.S.’s long-term debt rattling markets.

The cash bond market fell 3/8 to ½ point with some pockets of the market off as much as 1 point, sources said.

Lower quality credits, which have outperformed in 2023, were among the hardest hit in Wednesday’s selling.

While it was a rough day for the secondary space on Wednesday, Carnival Corp.’s new 7% first-priority senior secured notes due 2028 (Ba2/BB-) stayed afloat with the notes improved after falling flat on the break.

LifePoint Health Inc.’s recently priced 9 7/8% senior secured notes due 2030 (B2/B) continued to lose ground with the notes falling 3/8 to ½ point to break below a 99-handle.

While the market was down across the board, it was earnings that drove the largest loser during Wednesday’s session.

Scotts Miracle-Gro Co.’s senior notes (B1/B) fell 2 to 3½ points after posting disappointing numbers.

Stormy weather

Some of Wednesday’s new issue transactions bore skid marks related to the turbulent capital markets backdrop, sources said.

Executions were “good news/bad news.”

First, the good news.

CDK Global priced a $755 million issue of Central Parent LLC/CDK Global II LLC/CDK Financing Co., Inc. 8% first-lien secured notes due June 15, 2029 (B2/B+) at par to yield 8.003%, tight to talk.

The new CDK 8% notes were trading par ½ bid, par ¾ offered heading into Wednesday’s close, a trader said, adding that the deal was heard to be playing to decent-or-better demand.

It was a somewhat different story for TriNet Group, Inc., which priced a downsized $400 million issue (from $500 million) of eight-year senior notes (Ba2/BB) at par to yield 7 1/8%, at the wide end of talk.

The deal was met with modest demand, according to trader who added that books were heard to have built sufficient to cover the size of the notes offer, but not much further.

Meantime kdc/one Development Corp. Inc. and KDC US Holdings, Inc. withdrew their proposed $500 million offering of five-year senior secured notes (B3/B-/B) from the market, shifting that amount to their concurrent bank loans. Those bonds had been expected to price on Wednesday.

The two deals left on the active calendar also showed signs of break marks on the pavement.

Veritext downsized its offering of VT TopCo, Inc. seven-year senior secured notes (B2/B/B+) to $500 million from $720 million, shifting the proceeds to the bank loan, on Wednesday.

They talked the notes to yield 8½% to 8¾%, inside of early guidance.

The Veritext bond deal should be fine, according to a trader who added that books were heard to be two-times deal size on Wednesday.

And Rain Carbon Inc. talked its $450 million offering of second-lien senior secured notes due August 2029 (B3/B) to yield 12¼% to 12½% at par, in line with early guidance, as the deal underwent investor-friendly covenant changes.

Veritext and Rain Carbon are both expected to price Thursday.

The July/August crossover week has thus far seen the migration of at least $720 million of proceeds to the bank loan market from the high-yield bond market.

It probably has little if anything to do with rates, market turbulence, political turmoil or the climate, a trader said, late Wednesday.

CLOs are heard to be more active, of late. Thus, demand for bank loan paper has improved, the source said.

Carnival afloat

In the secondary, Carnival’s new 7% first-priority senior secured notes due 2028 bucked the broader market and improved in heavy volume on Wednesday.

The 7% notes were trading in the par to par ½ context throughout the session with the notes wrapped around par ¼ heading into the close, a source said.

They closed the previous session wrapped around par.

There was $85 million in reported volume.

In a heavily oversubscribed offering, Carnival priced a $500 million issue of the 7% notes at par on Tuesday.

The yield printed at the tight end of the 7% to 7¼% yield talk. Initial talk was in the 7¼% area.

The deal was heard to be more than eight-times oversubscribed.

LifePoint lower

LifePoint’s recently priced 9 7/8% senior secured notes due 2030 continued to fall under Wednesday’s heavy market conditions with the notes breaking below a 99-handle.

The notes were down 3/8 to ½ point to trade in the 98 7/8 to 99 1/8 context heading into the close, a source said.

There was $28 million in reported volume.

The refinancing deal played to strong demand during bookbuilding with the deal upsizing and talk tightening.

However, the notes have had a rough ride in the secondary space.

While they were flat on the break, they fell to a 99-handle on Tuesday.

LifePoint priced the $800 million issue at par in a Monday drive-by.

Scotts Miracle-Gro falls

While it was a heavy day for the market on Wednesday, earnings-related news drove the largest loser in the space.

Scotts Miracle-Gro’s senior notes sank after a large earnings miss.

The 4 3/8% senior notes due 2032 fell 3½ points to close the day at 77¼, a source said.

The yield rose to 8 1/8%.

There was $9 million in reported volume.

The 4% senior notes due 2031 fell 2 points to close the day at 78¼, a source said.

The yield was 7 7/8%.

There was $7 million in reported volume.

Scotts Miracle-Gro posted disappointing numbers with $1.12 billion in revenue versus the $1.15 billion expected.

Fund flows

On Tuesday the high-yield ETFs saw chunky outflows of $689 million on the day, according to a market source.

Actively managed high-yield funds, however, had sturdy inflows of $485 million on Tuesday, the source said.

Indexes

The KDP High Yield Daily index fell 18 basis points to close Wednesday at 50.33 with the yield now 7.49%.

The index was down 17 bps on Tuesday after inching up 2 bps on Monday.

The ICE BofAML US High Yield index was down 43.3 bps with the year-to-date return now 6.177%.

The index fell 30.6 bps on Tuesday.

The CDX High Yield 30 index was down 44 bps to close Wednesday at 102.74.

The index fell 36 bps on Tuesday.

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