Five junk issuers sell $3.35 billion; PetSmart active; HCA up on earnings; Kraft Heinz gains

By Paul A. Harris and Abigail W. Adams

Portland, Ore., Feb. 2 – With a major East Coast winter storm in the rearview mirror, the high-yield new issue market came storming back on Tuesday.

Five issuers priced a combined six tranches of notes with a total face amount of $3.35 billion.

Only one of the five issuers had been in the market overnight. The rest drove through on Tuesday.

Meanwhile, the secondary space continued to improve with the cash bond market up about ¼ point as equities ripped and crude oil futures rallied.

PetSmart LLC and PetSmart Finance Corp.’s two tranches of senior notes remained active although the notes were little changed in high-volume activity.

As market players awaited the onslaught of deals in the pipeline, earnings and company-related notes jumpstarted activity in some outstanding issues.

Kraft Heinz Foods Co.’s senior notes were active with the capital structure gaining 2 to 3 points on news of an asset sale.

HCA Healthcare, Inc.’s 3½% senior notes due 2030 (Ba2/BB-/BB) also gained following the health care facility operator’s fourth-quarter earnings.

Tuesday primary

In the $3.35 billion to price on Tuesday, stellar executions continued to be the rule, as two tranches priced inside of talk, three priced at the tight or rich ends of talk, and one came on top of talk.

Chesapeake Energy Corp. and Clear Channel Outdoor placed a billion dollars of bonds apiece, in deals heard to be significantly to massively oversubscribed.

Chesapeake did $500 million of 5 7/8% eight-year notes and $500 million of 5½% five-year notes in a deal heard to be a massive blowout: around 10-times oversubscribed across both tranches, according to one bond trader.

Tuesday's action left a sizable $3.35 billion active calendar of deals expected to clear ahead of the coming weekend (see related stories in this issue).

PetSmart active

PetSmart’s two tranches of senior notes remained active in the secondary space although the notes were little changed in the high-volume activity.

PetSmart’s recently priced 4¾% senior secured notes due 2028 (B2/B) continued to trade in the 103 to 103½ context throughout Tuesday’s session.

There was more than $44 million in reported volume.

PetSmart’s second part of the offering, the 7¾% senior notes due 2029 (Caa1/CCC+), continued to trade in the 106 to 106½ context with more than $52 million in reported volume, according to a market source.

PetSmart’s two tranches of senior notes have ripped since the company priced a $1.2 billion tranche of the 4¾% secured notes and a $1.15 billion tranche of the 7¾% notes at par last Friday.

Proceeds from the deal were to be used to refinance PetSmart debt in conjunction with the redistribution of Chewy Inc. shares to PetSmart’s parent company so the online pet product retailer was no longer a PetSmart subsidiary.

However, PetSmart’s previous attempt to price a $2.65 billion megadeal last October was pulled after the offering encountered investor pushback.

Sources attributed the success of the latest offering to market conditions, wider than expected pricing, and a greater portion of Chewy’s capital structure attributable to the bonds.

Chewy shares will serve as collateral for PetSmart’s secured notes and a portion of the parent company Chewy shares that were redistributed will guarantee both the secured and unsecured notes.

Kraft Heinz jumps

Kraft Heinz’s senior notes jumped in active trading on Tuesday following news of an asset sale.

Kraft’s 4 3/8% senior notes due 2046 rose 2¾ points to 109½, according to a market source.

The food company’s 4 7/8% senior notes due 2049 were up 2½ points to 115¾.

The notes jumped following media reports that Kraft Heinz was zeroing in on the sale of its Planters brand to Hormel for about $3 billion, a source said.

3G Capital is one of the major holders of Kraft Heinz equity and is known for forcing the sale of assets to increase a company’s profitability. “That’s what they do,” a source said.

Kraft Heinz was one of 2020’s largest fallen angels with the company downgraded to junk in February 2020.

The ratings downgrade was attributed to mismanagement and declining performance and came before the flurry of downgrades caused by the Covid-19 pandemic.

HCA gains

HCA’s 3½% senior notes due 2030 saw an active round of trading on Tuesday with the notes up more than 1 point following earnings.

The 3½% notes were changing hands in the 104 7/8 to 105¼ context heading into the market close, according to a source.

There was more than $18 million in reported volume.

The for-profit health care facility operator reported increased revenue of $14.29 billion in the fourth quarter versus analyst expectations for revenue of $13.99 billion.

Adjusted EBITDA was $3.118 billion in the fourth quarter, a year-over-year increase of 13.87%.

$608 million Monday outflows

The dedicated high-yield bond funds sustained $608 million of net daily outflows on Monday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds saw $550 million of outflows on the day.

High yield ETFs sustained $58 million of outflows on Monday, the source said.

The combined funds are tracking $1.33 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes rise

Indexes were posting gains on Tuesday after a mixed start to the week.

The KDP High Yield Daily index gained 6 points to close Tuesday at 69.31 with the yield now 4.22%.

The index was flat on Monday.

The ICE BofAML US High Yield index rose 16.4 bps with the year-to-date return now 0.604%.

The index was up 7.3 bps on Monday.

The CDX High Yield 30 index gained 48 points to close Tuesday at 108.78.

The index dropped 168 points on Monday.

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