$3.55 billion of new junk bonds; Hilton struggles; Ingles weakens; Comstock, LGI at a premium

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 15 – Amid heavy news volume on Tuesday half a dozen issuers priced a $3.55 billion face amount of dollar-denominated junk, with each issuer bringing a single tranche.

Meanwhile, the secondary space was again flat as the Federal Open Market Committee meeting convened on Tuesday.

The Federal Reserve is not expected to do an about-face on its current easy money policies, a source said.

However, eyes will be glued to the press conference tomorrow as market players debate the meaning of the latest data on inflation.

In the meantime, the secondary space remained near record tights although activity outside of recent issues was limited.

“Flow-wise it’s been very quiet,” a source said. “Unless you’re chasing new issues, there’s not a whole lot going on.”

Carry-over activity in the deals that priced during Monday’s session accounted for the majority of activity on Tuesday, as market players awaited the onslaught of deals in the pipeline to price.

Hannon Armstrong Sustainable Infrastructure Capital, Inc.’s 3 3/8% senior notes due 2026 (BB+) fell flat in the aftermarket with the notes priced to perfection, sources said.

Ingles Markets, Inc.’s 4% senior notes due 2031 (Ba2/BB) weakened in active trading after a strong break the previous session.

LGI Homes, Inc.’s 4% senior notes due 2029 (Ba2/BB-) and Comstock Resources, Inc.’s 5 7/8% senior notes due 2030 (B3/B/B+) were trading with large premiums to their issue prices.

However, Hilton Grand Vacations Inc.’s 4 7/8% senior notes due 2031 (B2/B-) struggled with the notes, at times, lagging their issue price in intraday activity.

Tuesday primary

Four of the six issuers to price in the Tuesday primary came with drive-by deals.

Three of the six upsized their deals.

Executions were solid or better, with one deal printing inside of talk, three at the tight ends, and two in the middle of talk (see related stories in this issue).

The June 14 week is off to a thundering start, with issuers placing an overall $6.67 billion in 11 dollar-denominated, junk-rated tranches during the first two sessions of the week.

Inflation

All eyes will be on the Federal Reserve Open Market Committee’s 2 p.m. ET press conference on Wednesday for clues about if and when the Federal Reserve will taper their bond buying program – a first step in the shift away from its easy-money policy.

There is an active debate occurring in the market over whether the current rate of inflation is real or transitory, a source said.

The inflationary data that came out last week “was off the charts,” the source said.

However, the high-yield market saw a strong run after the data was released.

Overseas buyers were the driving force of the activity that bid up the market, a source said.

However, market players seemed to be following the adage ‘the trend is your friend,’ with the secondary space remaining near record tights.

While few surprises and little movement is expected as a result of the Federal Reserve meeting, market player will be looking for a firmer conversation about bond tapering and clues about how it is reading the current economic data.

The Federal Reserve has maintained the line that the current rate of inflation is transitory.

However, “prices tend to go up very quickly and go down very slowly,” a source said. “I can’t imagine they won’t step in eventually.”

Priced to perfection

Hannon Armstrong’s 3 3/8% senior notes due 2026 fell flat in the aftermarket with the deal priced to perfection.

The notes were marked at par bid, par ¼ offered with most trades at the par 1/8 level, a source said.

With the deal upsized and pricing at the tight end of talk, there was not much room for movement in the aftermarket.

Hannon Armstrong priced an upsized $1 billion, from $750 million, issue of the 3 3/8% notes at par on Monday.

The yield printed at the tight end of yield talk in the 3½% area.

It was heard to have played to $1.3 billion of demand.

Ingles weakens

Following a strong break, Ingles Markets’ 4% senior notes due 2031 weakened in active trading on Tuesday.

The 4% notes dropped almost ¾ point. They were marked at par ¼ bid, par ¾ offered heading into Tuesday’s close, a source said.

The notes were marked at 101 bid, 101½ offered after breaking for trade on Monday.

Ingles priced a $350 million issue of the 4% notes at par on Monday.

The yield printed at the tight end of price talk in the 4 1/8% area.

The deal was heard to have been driven to the market by $200 million of reverse inquiry.

At a premium

LGI Homes’ 4% senior notes due 2029 and Comstock’s 5 7/8% senior notes due 2030 were putting in strong performances in the aftermarket with both trading with solid premiums.

LGI’s 4% senior notes were marked at par ¾ bid, 101¼ offered heading into the market close.

However, volume in the small issue was relatively light and expected to become increasingly lighter with the notes mostly “put away,” a source said.

LGI Homes priced a $300 million issue of the 4% notes at par on Monday.

The yield printed in the middle of yield talk in the 4% area.

Comstock’s 5 7/8% senior notes due 2030 were marked at par ¾ bid, 101¼ offered heading into the market close.

The notes were little changed after a strong break that saw them close the previous session at 101.

Comstock priced an upsized $965 million, from $500 million, issue of the 5 7/8% notes at par on Monday.

The yield printed at the tight end of the 5 7/8% to 6% price talk.

Hilton struggles

Hilton’s 4 7/8% senior notes due 2031 were struggling in the aftermarket with the notes, at times, dipping below their issue price.

The 4 7/8% notes were marked at 99¾ bid, par ¼ offered heading into the market close.

The poor performance of the notes was attributed to oversaturation of Hilton paper.

The timeshare company priced an $850 million issue of 5% senior notes due 2031 (B2/B-) as recently as March 20.

“There are only so many times you can go to the well,” a source said.

Hilton priced an upsized $500 million, from $425 million, issue of the 4 7/8% notes at par on Monday.

The yield printed at the tight end of yield talk in the 5% area.

$522 million Monday outflows

The dedicated high-yield bond funds had $522 million of net outflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $559 million of outflows on the day.

However actively managed high-yield funds were positive on Monday, seeing $37 million of inflows on the day, the source said.

Indexes mixed

Indexes remained mixed on Tuesday with some posting nominal gains while others saw nominal losses.

The KDP High Yield Daily index inched up 3 points to close the day at 70.08 with the yield 3.76%.

The index rose 5 points on Monday.

The ICE BofAML US High Yield index gained 2.2 bps with the year-to-date return now 3.171%.

The index was up 3.9 bps on Monday.

The CDX High Yield 30 index shaved off 3 bps to close Tuesday at 110.13.

The index was down 9 bps on Monday.

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