WeWork gains continue; MPH Acquisition rebounds; FXI drops; funds add $346 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 15 – The domestic high-yield primary market was again dormant as the secondary space saw a volatile session on Thursday.

The secondary space began the day with losses, made gains in intraday trading, and came in to close the day relatively unchanged, sources said.

WeWork Cos. Inc.’s 7 7/8% senior notes due 2025 remained in focus on Thursday with the notes continuing their upward momentum.

MPH Acquisition Holdings LLC's 7 1/8% senior notes due 2024 snapped their losing streak with the notes paring their losses from the previous session.

FXI Holdings Inc.’s 7 7/8% senior notes due 2024 were losing ground following disappointing earnings.

Meanwhile, following the largest outflow year to date, high-yield mutual funds and exchange-traded funds saw a modest $346 million enter the space for the week ended Wednesday.

The inflow follows the record-setting outflow of $4.07 billion for the week ended Aug. 7.

A volatile day

Capital markets in the United States appeared to regain a foothold on Thursday, following Wednesday's rout.

Heading into midday, junk was generically one-quarter of a point better on the day, a New York-based bond trader said.

As to Wednesday's rout, the junk index dropped a significant 49 cents on the day, on a price basis, according to a market source.

Taking a header at the midpoint of August, the month has not been a good one for junk bonds, the source added.

The high-yield index is down 1.18% for the month to Wednesday's close.

Not surprisingly, given the volatility, higher rated bonds have fared better in August.

Double-B rated bonds are down 0.39% on the month to Wednesday's close, whereas triple-C rated paper has fallen 2.15% on the month to the Aug. 15 close.

The August drubbing notwithstanding, high yield has generated solid returns for the year 2019.

The index has returned 9.02% for 2019 to Wednesday's close, the source said.

Summer hours

High-yield issuance may have run its course for the summer of 2019, sources say.

Thursday may have been the last good opportunity for issuers to scare up a decent crowd, as market participants look to take mandatory vacation time ahead of the extended Labor Day holiday weekend, a syndicate banker said.

The two-week run-up to Labor Day is traditionally a low liquidity interval in the high-yield market, the banker recounted.

And given recent volatility, generated principally by tensions surrounding the trade war between China and the United States, and by investor apprehensions regarding a slowing global economy, late August is not all that promising on the new deal landscape, the source said.

Gaming & Leisure Properties, Inc. came Wednesday with a $1.1 billion split-rated two-part deal (expected Ba1/BBB-/BBB-), placing $400 million of 3.35% five-year notes at Treasuries plus 195 basis points, well inside of the 225 basis points initial guidance, and $700 million of 4% long 10-year notes at Treasuries plus 250 bps, also well inside of the 270 bps initial guidance.

It was a straight investment grade execution and did not appear to generate much interest among high-yield investors, market sources said.

The high-yield desk was not involved with the trade, a source told Prospect News.

WeWork’s gains continue

WeWork’s 7 7/8% senior notes due 2025 continued their upward trajectory in high-volume activity on Thursday.

The notes were up another 3¼ points to close Thursday at 105¼, their highest level since pricing in April 2018, according to a market source.

The notes continued to dominate activity in the secondary space with more than $57 million in reported volume on the tape.

WeWork’s 7 7/8% notes have been on the rise since the co-working office space company filed for its initial public offering on Wednesday.

The notes jumped 4 points during Wednesday’s session following the news.

While a short squeeze may have helped propel the notes higher, there is also speculation that WeWork will follow its IPO with a new debt offering and take out the 2025 notes, a source said.

MPH Acquisition snaps back

MPH Acquisition’s 7 1/8% senior notes due 2024 snapped their negative trend on Thursday with the notes trading up.

The 7 1/8% notes climbed 4 points in active trading to close Thursday at 86¾, according to a market source. More than $23 million of the bonds were on the tape by the late afternoon.

The 7 1/8% notes dropped 7 points on Wednesday and ½ point on Tuesday.

The downward trend was most likely earnings related, a market source said.

FXI Holdings trades off

FXI Holdings’ 7 7/8% senior notes due 2024 were trading off on Thursday following the specialty chemical holding company’s earnings report.

The 7 7/8% notes dropped 4½ points to 85½ with about $8 million in reported volume on the tape, according to a market source.

The notes were among the largest decliners of Thursday’s session.

FXI reported soft second-quarter earnings numbers with revenues declining due to lower selling prices caused by the reduced cost of raw materials, a source said.

Big ETF outflows on Wednesday

High-yield ETFs saw daily cash outflows of $756 million on Wednesday, according to a market source.

Actively managed high-yield funds, the asset managers, were flat to slightly positive on the day, with $10 million of inflows.

Indexes mixed

Indexes were mixed on Thursday after all posted losses on Wednesday.

The KDP High Yield Daily index was down 9 points to 70.92 with the yield 5.72%.

The index dropped 13 bps on Wednesday, rose 18 bps on Tuesday and was up 11 bps on Monday.

The ICE BofAML US High Yield index gained 2 bps on Thursday with the year-to-date return now 9.578%.

The index dropped 52.7 bps on Wednesday, was up 20.7 bps on Tuesday and shaved off 5.3 bps on Monday.

After climbing above 10% returns on Tuesday, the index again sank below the 10% threshold on Wednesday.

The index initially slid below the 10% return threshold amid the market sell-off on Aug. 5.

The CDX High Yield 30 index climbed 20 bps to close Thursday at 105.41.

The index sank 102 bps on Wednesday, rose 85 bps on Tuesday, and sank 56 bps on Monday.

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