Junk: NFP holds premium; Nielsen gains as merger garners support; Avaya tanks

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 9 – The primary market remained shut on Tuesday.

However, last week’s flurry of activity has spurred hope for a more active calendar in the days and weeks to come.

Meanwhile, it was a soft day in the secondary space with the cash bond market off 3/8 to ½ point on the eve of the release of July’s Consumer Price Index report, sources said.

The post-Federal Reserve market rally has faltered in recent sessions with last Friday’s jobs report sparking a revision in expectations for the central bank’s rate hike schedule.

The market has now priced in another 75 basis points rate increase in September.

However, a CPI report that comes in either below or above expectations will spark additional revisions, a source said.

While a soft day in the market, trading volume remained thin with recent issues and topical news driving activity in the space.

NFP Corp.’s 7½% senior secured notes due 2030 (B1/B) were holding above their issue price in high-volume activity, despite the general weakness in the market.

Nielsen Holdings plc’s senior notes were among the major gainers of Tuesday’s session following news the company and its largest shareholder were on the verge of reaching an agreement on Nielsen’s pending acquisition.

Avaya Holdings Corp.’s 6 1/8% senior secured notes due 2028 (B3/CCC) reversed their rally and were retesting their lows after the company issued a going concern warning in its preliminary earnings report.

Primary eyed

The primary market sat idle on Tuesday.

However, the new issue machine sputtered to life last Thursday, and since that time three upsized deals cleared the market in drive-by executions that all featured dealers ratcheting down pricing, all of which came without the steep, dramatic discounts seen during the mid-July period.

Part of the story is credit quality, sources say.

Some of the deals that struggled in mid-July had leverage metrics that would have been challenging even if runaway inflation, economic uncertainty and geopolitical tension were not all hovering over the market simultaneously.

Also, high yield has improved, a market source insisted on Tuesday, pointing to the spread of the ICE BofA High Yield Master II OAS which hit a high of 582 bps on July 5, but touched 423 bps on Monday.

NFP holds premium

In the secondary market, NFP’s 7½% senior secured notes due 2030 held onto their premium on Tuesday despite a red day for the market.

The 7½% senior notes were marked at par 1/8 bid, par 5/8 offered early in the session.

They were changing hands in the par ½ to par ¾ context heading into the market close.

There was $41 million in reported volume, which was heavy given the size of the issue, a source said.

The provider of insurance brokerage services priced an upsized $350 million, from $300 million, issue of the 7½% notes at par in a Monday drive-by.

The yield printed at the tight end of talk for a yield of 7½% to 7 5/8%, which tightened from initial talk for a yield in the 7¾% area.

Nielsen gains

Nielsen’s senior notes were among the major gainers of Tuesday’s session following news the company was closing in on an agreement with its largest shareholder regarding its pending merger.

Nielsen’s 5 7/8% senior notes due 2030 (B2/BB) gained 2 points to break par.

They were changing hands in the par ¼ to par ½ context heading into the market close, a source said.

The yield on the notes was about 5¾%.

There was $12 million in reported volume.

Nielsen’s 4¾% senior notes due 2031 had the largest price movement with the notes jumping 4½ points to a 99-handle.

The 4¾% notes were changing hands in the 99 to 99½ context heading into the market close.

There was also $12 million in reported volume.

Nielsen’s capital structure jumped following news that it was zeroing in on an agreement with its largest shareholder, The WindAcre, regarding its pending acquisition.

WindAcre, which owns 27% of the company’s outstanding shares, had been opposed to Nielsen’s acquisition by a consortium of private equity firms at $28 per share with a total enterprise value of $16 billion.

However, Nielsen canceled a special meeting of its shareholders scheduled for Aug. 9 with WindAcre preliminarily agreeing to join the consortium of private equity firms with respect to a portion of its shares and receive $28 for remaining shares.

Avaya’s going concern

Avaya’s 6 1/8% senior secured notes due 2028 reversed their rally and were retesting their all-time low in heavy volume on Tuesday after the company issued a going concern warning in its preliminary earnings report release.

The 6 1/8% notes fell 9 points to close Tuesday at 47¾ with the yield over 22%.

There was $22 million in reported volume.

Avaya’s notes plummeted to a 47-handle in late July after the company released a downwardly revised preliminary earnings guidance which sparked bankruptcy concerns.

However, the notes strongly rebounded after the late July plummet and had been trading in the 56 to 57 context in the runup to the company’s earnings report.

The unaudited report, released Tuesday, was not good, a source said.

“The company has determined that there is substantial doubt about the company’s ability to continue as a going concern,” it said in a press release.

Avaya recently completed a series of refinancing transactions which included $350 million in new senior secured term loans and a $250 million private placement of 8% exchangeable notes due 2027.

“That’s not good,” a source said.

Investors of the first-lien term loan have hired law firm Akin Gump Strauss Hauer & Feld regarding the debt sale.

Fund flows

The cash flows of the dedicated high-yield bond funds were mixed on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $362 million of inflows on the day.

Actively managed high-yield funds, however, sustained $189 million of outflows on Monday, the source said.

The combined funds are tracking $1.15 billion of net inflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index fell 18 points to close Tuesday at 57.13 with the yield now 6.52%.

The index gained 18 points on Monday.

The ICE BofAML US High Yield index fell 31.7 bps with the year-to-date return now negative 8.353%.

The index gained 35.2 bps on Monday.

The CDX High Yield 30 index fell 61 bps to close Tuesday at 100.97.

The index rose 16 bps on Monday.

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