Dollar junk primary continues slumber; DISH rises, Hughes Satellite falls on merger talk

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 6 – The dollar-denominated junk primary market remained dormant on Thursday and is apt to end up getting skunked for the holiday-abbreviated post-Independence Day week, sources said.

With only a summer Friday remaining ahead of the weekend, the market is indeed likely to put up a goose egg for the July 3 week, a syndicate banker conceded. The banker added that the week ahead is quite likely to see a reactivation of new issue business in the dollar-denominated market.

As U.S. investors demonstrated risk aversion on Thursday, on the heels of financial data indicating that there are inflationary pressures that remain to be dealt with by the Fed, it was a different story on the euro-denominated new issue bourse.

The euro session saw a trio of single-tranche issuers – Amara Nzero, Avis Budget Finance plc and Profine – price an overall total of €1.05 billion.

Profine priced €380 million. Of that, €20 million was earmarked to be used to fund a shareholder dividend, making it the second euro junk dividend deal in a week.

What’s more, Profine priced its Thursday issue of five-year secured notes (B2/B) at par to yield 9 3/8%, at the tight end of talk, indicating at least some surplus demand for the paper.

Heavy day in secondary

Meanwhile, it was a heavy day in the secondary space with selling pressure setting in on the heels of blockbuster employment reports.

Thursday marked a heavy day of macro data with the JOLTS and ADP employment reports posting early in the session.

While the JOLTS report showed a wider-than-expected decrease in job openings, the ADP employment report recorded a private payroll increase of 497,000, more than double analyst forecasts.

Market players will be closely eyeing the U.S. nonfarm payrolls report on Friday.

However, the strong numbers on Thursday sent Treasury yields to a muti-year high as markets came to terms with the likelihood of additional rate increases.

While the market closed off its lows of the day, the cash bond market still ended Thursday’s session down ½ to ¾ point with rate-sensitive names taking the brunt of the selling pressure.

OneMain Finance Corp.’s recently priced 9% senior notes due 2029 (Ba2/BB) gave back all gains since hitting the secondary space with the notes ending the session below par.

Ford Motor Credit Co. LLC’s senior notes (Ba2/BB+) also saw selling pressure with the notes down ½ to 1 point in heavy volume.

However, topical news sparked the largest gains and losses of Thursday’s session.

News reports that Charlie Ergen, co-chair of DISH Network Corp. and EchoStar Corp., was considering a merger of the two entities sparked renewed buying interest in DISH’s junk bonds, which climbed 1 to 2½ points in heavy volume.

However, the news also sparked selling in EchoStar subsidiary Hughes Satellite Systems Corp.’s secured and unsecured notes, which fell 2 and 4 points, respectively.

Rate sensitive

Rate-sensitive names were under pressure on Thursday as Treasury yields rose to a multi-year high.

OneMain’s recently priced 9% senior notes due 2029 gave back all gains since hitting the secondary space to close the day below par.

The notes fell about 1 point to a 99-handle.

They were trading in the 99½ to 99¾ context heading into the close, according to a market source.

There was $25 million in reported volume.

The 9% notes saw a flat start in the aftermarket after pricing at par on June 21.

However, they gained strength as market conditions improved and closed June wrapped around 101.

Several tranches of Ford were also lower on Thursday. Its 6.8% senior notes due 2028 fell 1 point to close the day in the 99 1/8 to 99 3/8 context, a source said.

The yield was about 7%.

There was $20 million in reported volume.

The 7.2% senior notes due 2030 fell ¾ point to close the day at par ¼ with the yield about 7 1/8%.

There was $15 million in reported volume.

The 6.1% senior notes due 2032 were also down ¾ point to close the day at 95¾ with the yield about 6¾%, according to a market source.

There was also $15 million in reported volume.

Ergen’s merger

While macro data sparked selling pressure in the broader market, it was topical news that drove the largest gains and losses of the session.

News that Ergen was exploring a merger between DISH and EchoStar, the satellite companies he co-chairs, sparked buying in DISH bonds and selling in EchoStar subsidiary Hughes Satellite’s bonds.

DISH’s 11¾% senior secured notes due 2027 (Ba3/B) were the most actively traded issue in the secondary space.

The notes were little changed in the heavy volume with the notes remaining on a 97-handle and closing the day at 97¾ with the yield about 12 3/8%, according to a market source.

There was $27 million in reported volume.

However, DISH’s short-duration 5 7/8% senior notes due Nov. 15, 2024 (B3/B-) shot up 2¼ points.

The notes closed Thursday at 90¼ with the yield 14%.

There was $19 million in reported volume.

DISH’s 5 1/8% senior notes due 2029 gained 1 point to close the day at 48 with the yield 20 7/8%.

There was $16 million in reported volume.

Hughes Satellite’s 6 5/8% senior notes due 2026 (B2/BB) sank 4¼ points following the news.

The 6 5/8% notes closed Thursday at 89¾ with the yield 10 5/8%.

Hughes’ split-rated 5¼% senior secured notes due 2026 (Ba2/BBB-) fell 2¼ point to close the day at 91 7/8 with the yield 8 3/8%.

The movement in both DISH and Hughes notes was a sign that there “was some teeth” to the market chatter about a potential merger, a source said.

While a credit positive for DISH’s beleaguered senior notes, the news was a credit negative for Hughes because “DISH is a dog,” another source said.

Indexes

The KDP High Yield Daily index sank 39 points to close Thursday at 50.10 with the yield now 7.56%.

The index was down 9 points on Wednesday and shaved off 2 points on Monday.

The ICE BofAML US High Yield index was down 70.6 basis points with the year-to-date return now 4.631%.

The CDX High Yield 30 index fell 50 bps to close Thursday at 101.78.

The index was down 30 bps on Wednesday and 19 bps on Monday.

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