Junk primary moves $2.82 billion; 10-year Treasury move surprises market; Tap Rock gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 23 – The speculative-grade new issue market continued to generate a hefty news volume on Thursday.

Six issuers priced single-tranche deals, raising a grand total of $2.82 billion.

Meanwhile, the risk-on sentiment that propelled equity markets higher on Thursday was not shared in the secondary junk bond space as a surprise hike in the 10-year Treasury yield caught many by surprise, a source said.

The Federal Reserve signaled they would not formally announce bond tapering until their November meeting. However, there was heavy selling in 10-year Treasuries on Thursday.

“The Federal Reserve didn’t buy what Treasuries thought they were going to. That sent the (Treasuries) market reeling,” a source said.

While the overall cash bond market was still well-bid due to ETF buying, there was some selling by real money players with rate-sensitive names under pressure, the source said.

While the cash-bond market was up as much as ¼ point early in the session, it closed well off the highs of the day.

Brookfield Property REIT Inc.’s 4½% senior secured notes due 2027 (B1/BB+) were among the names under pressure on Thursday with the notes lagging their issue price.

Wabash National Corp.’s 4½% senior notes due 2028 (B2/B) were slightly softer on Thursday although the notes continued to trade with a slight premium to their issue price.

Match Group’s 3 5/8% senior notes due 2031 (Ba3/BB) fell flat in the aftermarket.

However, Tap Rock Resources, LLC’s 7% senior notes due 2026 (B3/B) climbed higher on Thursday as crude oil futures increased.

Meanwhile, high-yield mutual and exchange-traded funds continued to see inflows with $536 million entering the space through Wednesday’s close, according to the Refinitiv Lipper Fund Flow report.

Six new issues

In the junk bond primary, executions were sharp, with five of Thursday's six tranches pricing at the tight ends of talk, while the remaining tranche came in the middle of talk.

Timing was accelerated on two deals that were announced Thursday morning as business expected to remain in the market overnight, and price Friday

Viavi Solutions Inc. came on a Thursday-Friday timeline but priced Thursday instead.

The Scottsdale, Ariz.-based manufacturer of testing and monitoring equipment for networks priced a $400 million issue of 3¾% eight-year senior notes (Ba2/BB+/BB) at par, at the tight end of talk.

Orders totaled $1.1 billion for the new Viavi 3¾% notes at the close of books, a trader said.

Likewise Catalent, Inc. announced its deal on Thursday, with plans to price Friday. However, Catalent couldn't wait, either.

The Somerset, N.J.-based pharmaceutical company priced an upsized $650 million issue (from $450 million) of 3½% 8.5-year senior notes (B1/BB-) at par, at the tight end of talk.

Notwithstanding those accelerated deals, there remains an active Friday calendar, with $4.2 billion of junk still expected to clear the market before the close of the very active Sept. 20 week.

Most conspicuous among the announced Friday offerings is Altice France SA, in the market with a $3 billion equivalent offering of eight-year senior secured notes (existing ratings B2/B), featuring dollar-denominated notes with initial talk of 5 5/8%, and euro-denominated notes with initial talk of 4 3/8% (see related stories in this issue).

Brookfield lags

In the secondary, Brookfield Property’s 4½% senior secured notes due 2027 were lagging their issue price on Thursday.

The notes were marked at 99¾ bid, 99 7/8 offered heading into the market close, a source said.

There was more than $35 million in reported volume.

The notes struggled during bookbuilding with the offering downsized and pricing later than expected.

The company is also a REIT which is a sector that is particularly sensitive to rate hikes, a source said.

“REITs are Treasury-sensitive and we’re starting to see some selling in them,” a source said. “As rates rise, they’re going to fade.”

Brookfield Property REIT priced a downsized $750 million, from $1 billion, issue of the 4½% notes at par on Wednesday.

The yield printed in the middle of yield talk in the 4½% area.

Wabash softer

Wabash’s 4½% senior notes due 2028 were slightly softer on Thursday.

The notes came in about 1/8 point and were marked at par bid, par ½ offered heading into the market close, a source said.

There was about $29 million in reported volume.

The notes closed the previous session at par 1/8 bid, par 5/8 offered.

Wabash priced a $400 million issue of the 4½% notes at par in a Wednesday drive-by.

The yield printed at the tight end of the 4½% to 4¾% talk. Initial guidance was in the 4 3/8% area.

Match Group flat

Match Group’s 3 5/8% senior notes due 2031 fell flat in the aftermarket.

They were marked at par bid, par ¼ offered heading into the market close – a level the notes have been stuck at since breaking for trade.

“Those never went anywhere,” a source said.

There was about $62 million in reported volume during Thursday’s session.

Match Group priced a $500 million issue of the 3 5/8% notes at par in a Wednesday drive-by.

The yield printed tighter than the 3¾% to 4% yield talk.

Tap Rock gains

While several recent issues were flat or soft on Thursday, Tap Rock’s 7% senior notes due 2026 were on the rise.

The notes jumped to a 102-handle and were marked at 102 bid, 102½ offered heading into the close, a source said.

They were on a 101-handle the previous session.

The oil and gas company’s notes were on the rise alongside crude oil futures.

WTI crude oil futures settled at $73.30, an increase of $1.07 or 1.48% on Thursday.

Tap Rock priced an upsized $500 million, from $400 million, issue of the 7% notes at par on Wednesday.

Indexes

The KDP High Yield Daily index was flat on Thursday, closing the day at 70.34 with the yield 3.51%. The index gained 3 basis points on Wednesday after sliding 8 bps on Tuesday and 9 bps on Monday.

The CDX High Yield 30 index rose 10 bps to close Thursday at 109.74.

The index was up 34 bps on Wednesday, 10 bps on Tuesday and 40 bps on Monday.

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