TransDigm, Baytex hold premiums; Vital Energy adds; Encore outperforms in junkland

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 15 – On a quiet Friday in the junk bond primary market, the secondary space closed the week on soft footing with the cash bond market off another 1/8 point, a source said.

While the market was largely sideways following Tuesday’s Consumer Price Index print, the Producer Price Index report released Thursday sent a risk-off sentiment through the market.

With both reports hotter than expected, market players are now questioning whether the Federal Reserve will have the confirmation needed to begin to cut rates with the market widely anticipating a June start date.

While the cash bond market was weaker as Treasury yields continued to creep higher on Friday, many remained on the sidelines waiting to make moves until the Federal Open Market Committee announcement next week.

New issues remained in focus with recent deals continuing to put in strong aftermarket performances.

Encore Capital Group, Inc.’s 9¼% senior secured notes due 2029 (Ba2/BB+) outperformed with buyers continuing to chase the notes in the secondary.

Vital Energy Inc.’s 7 7/8% senior notes due 2032 (B2/B) continued to add after a strong break.

TransDigm Inc.’s 6 3/8% senior secured notes due 2029 (Ba3/B+) moved in a flurry of activity following the sizeable add-on that priced during Thursday’s session.

While below their previous levels, the notes held a healthy premium to the add-on price.

Baytex Energy Corp.’s 7 3/8% senior notes due 2032 (B1/BB-/BB-) also maintained the healthy premium to their discounted offer price gained on the break despite a soft day for the market.

Primary update

On the heels of $4.23 billion of Monday-through-Thursday dollar-denominated new issue volume the primary market put up a goose egg on Friday.

The active forward calendar ended the week clear.

Sources canvassed on Friday professed no visibility on any particular transactions slated to roll out in the week ahead.

The issuance total for the week to the March 15 close was the lightest since the first week of the year.

The Jan. 1 week, a typical post-holiday week during which market activity regenerated following the year-end holiday lull, saw just two deals price, for an overall total of $750 million.

Heading into the past week the lowest weekly issuance volume came in the Feb. 26 week, which had just $4.76 billion.

The biggest week, year to date, was that which began on Jan. 29, and which generated $12 billion in 14 dollar-denominated tranches.

Average weekly issuance, year-to-date, is $7.1 billion.

Vital adds

Vital Energy’s 7 7/8% senior notes due 2032 continued to gain after a strong break with the notes up another 3/8 to ½ point on Friday.

The notes were trading in the par 7/8 to 101 context heading into the market close, a source said.

Vital Energy priced an upsized $800 million, from $575 million, issue of the 7 7/8% notes at par in a Thursday drive-by.

The yield printed at the tight end of yield talk in the 8% area.

Encore outperforms

Encore’s 9¼% senior secured notes due 2029 continued to shoot higher in the aftermarket with the notes briefly breaking above a 101-handle.

The notes were up ½ to ¾ point to trade as high as 102 early in the session.

However, they lost some steam into the close to end the day in the 101 3/8 to 101 5/8 context, a source said.

The deal was heavily oversubscribed with buyers chasing the chunky yield in the aftermarket, the source said.

Encore priced an upsized $500 million, from $400 million, issue of the 9¼% notes at par on Thursday.

The yield printed at the tight end of the 9¼% to 9½% yield talk.

The deal was heard to be as much as 3x oversubscribed.

Holding premium

TransDigm’s 6 3/8% senior secured notes due 2029 were traded in heavy volume on Friday after the company priced a sizeable add-on the previous session.

While below their previous trading level, they continued to trade at a premium to the add-on price.

The 6 3/8% notes continued to trade in the 99 7/8 to par context, a source said.

The notes have largely traded in the par 3/8 to par 5/8 context for the past two months.

TransDigm priced a $550 million add-on to the 6 3/8% notes at 99.75 to yield 6.433% in a Thursday drive-by.

The deal priced at the rich end of the 99.5 to 99.75 price talk.

Baytex’s new 7 3/8% senior notes due 2032 also maintained the healthy premium to their discounted issue price gained on the break.

The 7 3/8% notes continued to trade in the 99 7/8 to par 1/8 context on Friday, a source said.

Baytex priced an upsized $575 million, from $500 million, issue of the 7 3/8% notes at 99.266 to yield 7½% in a Thursday drive-by.

Fund flows

High-yield ETFs sustained $1 billion of daily cash outflows on Thursday, according to market source who added that it is the biggest daily outflow sustained by the junk ETFs since July.

Actively managed high-yield funds had $136 million of inflows on the day.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds had $289 million of net inflows for the week to the Wednesday, March 13 close, their second consecutive weekly inflow; the junk funds had $346 million of net inflows in the week to March 6, the source recounted.

Year-to-date the combined high-yield funds have had $1.265 billion of net inflows, according to the market source.

Indexes

The KDP High Yield Daily index was down 11 basis points to close Friday at 50.55 with the yield now 6.95%.

The index was down 17 bps on Thursday, inched up 1 bp on Wednesday and 1 bp on Tuesday, and fell 8 bps on Monday.

The index posted a weekly loss of 34 bps.

The ICE BofAML US High Yield index was off 9.1 bps with the year-to-date return now 0.779%.

The index was down 28.8 bps on Thursday, added 9.9 bps on Wednesday and 3 bps on Tuesday and shaved off 2.6 bps on Monday.

The index was down 27.6 bps on the week.

The CDX High Yield 30 index fell 15 bps to close Friday at 106.52.

The index was down 33 bps on Thursday after rising 5 bps on Wednesday, 21 bps on Tuesday and 1 bp on Monday.

The index was down 21 bps on the week.

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