Junk strength continues; Ford higher; Rockcliff skyrockets on takeover news; NGL gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 4 – The junk bond new issue market remained quiet on Wednesday.

Meanwhile, strength in the secondary space continued into Wednesday with the market unnerved by an unchanged Job Openings and Labor Turnover Survey (Jolts) released and Federal Open Market Committee meeting minute notes, also released, reflecting a strong hawkish sentiment.

While equity markets had another volatile session on a heavy day for macro data, the bond market remained strong with Treasuries rallying following the release of the minute notes.

The cash bond market added another ½ point in the second trading session of 2023.

While the previous two sessions were strong and the secondary space launched the new year in positive territory, sources were skeptical of the rally.

The first half of the year is expected to be volatile, sources said.

There was an uptick of activity in the secondary space with the first new paper since early December 2022 entering the aftermarket.

The new paper from Ford Motor Credit Co. LLC was putting in a strong aftermarket performance with the notes trading at premiums to their discounted issue prices.

It was a strong day for the energy sector with topical news sending certain issues soaring.

Rockcliff Energy II LLC’s 5½% senior notes due 2029 (B3/B+/B+) were the best performing issue in the secondary space with the notes climbing more than 5 points amid takeover reports

NGL Energy Operating LLC/NGL Finance Corp.’s 7½% senior secured notes due 2026 (B2/BB-) were in focus with the notes making large gains on raised guidance.

Uncertain start

Although the new year has seen $2.75 billion of junk-rated, dollar-denominated issuance (Ford Motor Credit), the deal in question came off the investment-grade desk.

Thus the lights have yet to come up on the high-yield syndicate desks in the new year.

Rate uncertainty, and refinancing scenarios ranging from the unpalatable to the untenable, are among the forces inhibiting a meaningful reopening of the primary market, sources say.

Also there is a backlog of hung M&A debt estimated to be $32.5 billion – the biggest backlog since the post-Lehman days – clogging the new issue market as an overhang of supply against which issuers, especially those with lower credit ratings, would have to compete, on a price basis.

Things have been dramatically different in the high-grade new issue market, of course.

There issuers have priced $53 billion during the first two sessions of 2023.

That represents fully half of the total high-yield issuance volume of 2022, a trader remarked on Wednesday afternoon.

Ford at a premium

New Ford paper was in focus on Wednesday with the notes putting in a strong aftermarket performance.

Ford’s new 6.95% senior notes due 2026 and 7.35% senior notes due 2030 (Ba2/BB+/BB+) were trading at premiums to their discounted issue prices.

The 6.95% notes added another 3/8 point after a strong break, a source said.

The 6.95% notes were changing hands in the par 3/8 to par 5/8 context heading into the market close.

The 7.35% senior notes due 2030 added ¼ point with the notes changing hands in the par ¼ to par ½ context, a source said.

Ford reopened the primary on Tuesday with a $2.75 billion three-tranche offering.

The deal included a $1.3 billion tranche of the 6.95% notes which priced at 99.873 to yield 7% and a $1.15 billion tranche of 7.35% notes that priced at 99.877 to yield 7 3/8%.

The deal also included a $300 million tranche of three-year floating-rate notes that priced at par with a coupon of SOFR plus 295 basis points.

Rockcliff soars

Rockcliff’s 5½% senior notes due 2029 was the top performing issue of Wednesday’s session with the notes jumping more than 6 points following takeover reports.

The 5½% notes were changing hands in the 97½ to 98 context in heavy volume.

The off-the-run issue had $35 million in reported volume.

The notes closed the previous session on a 91-handle, a source said.

The natural gas producer’s junk bonds surged following reports that TG Natural Resources, a unit of Tokyo Gas Co., was in advanced talks to buy Rockcliff in a deal worth about $4.6 billion, a source said.

NGL’s guidance

NGL’s 7½% senior secured notes due 2026 were in focus on Wednesday with the notes making strong gains after the midstream company raised its forward guidance.

The 7½% notes jumped 2 points to a 91-handle, a source said.

The notes were changing hands in the 91 to 91½ context heading into the market close.

The yield was about 10 7/8%.

There was $19 million in reported volume.

The notes closed the previous session on an 89-handle.

The midstream company was on the rise after it raised its fiscal 2023 adjusted EBITDA guidance to greater than $630 million from the previous guidance of greater than $600 million.

Fund flows

Actively managed high-yield funds sustained $305 million of daily cash outflows on Tuesday, according to a market source.

High-yield ETFs, meanwhile, were positive on the day, posting $159 million of inflows on Tuesday.

The combined funds are tracking $2.49 billion of net outflows for the week that will conclude with Wednesday's close, the market source said.

Indexes

The KDP High Yield Daily index rose 24 points to close Wednesday at 52.23 with the yield now 7.33%.

The index gained 34 points on Tuesday.

The ICE BofAML US High Yield index rose 60.3 bps with the year-to-date return now 1.173%.

The index was up 57 bps on Tuesday.

The CDX High Yield 30 index rose 32 bps to close Wednesday at 101.17.

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