Junk primary prices $2.6 billion; SVC, Axalta at premium; funds see $6.26 billion inflow

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 9 – Measured against the languid pace of the 2023 primary market, it was a big Thursday in junkland.

Five issuers printed a combined $2.6 billion face amount of dollar-denominated speculative-grade notes.

All but one of Thursday’s deals had been in the market at least overnight.

None were upsized.

Executions were solid, with two deals pricing at the tight or rich ends of talk, while the remaining three came in the middle or on top of talk.

Parsing the action late in the afternoon, a trader said that the NOVA Chemicals Corp. deal was a blowout.

The Canadian petrochemical company priced a $400 million issue of 8½% five-year senior secured first-lien notes (Ba1/BB+) at 99.989 to yield 8½%, on top of talk.

The deal was five-times to six-times oversubscribed, according to the trader who had the new NOVA bonds going out the door at 101 3/8 bid, 101 5/8 offered.

Thursday’s biggest deal came from Spirit AeroSystems, Inc., which priced a $1.2 billion issue of seven-year senior secured second-lien notes (B3/B-) at par to yield 9¾%, in the middle of talk.

The session’s sole drive-by came from OneMain Finance Corp., which brought a $250 million add-on to its 9% senior notes due Jan. 15, 2029 (Ba2/BB) that priced at 99.50 – the rich end of talk – to yield 9.115%.

Secondary sees pull-back

Meanwhile, the secondary space again saw selling pressure on Thursday after a largely flat week.

A disastrous 30-year bond auction and hawkish comments from Federal Reserve chair Jerome Powell “tipped” the market, which had been on a tear, a source said.

The high-yield market launched the day with gains; however, it was negative by the close with Powell again throwing cold water on market expectations for an end to rate hikes.

While the market saw a pull-back on Thursday, the overall space remained healthy with the record-setting inflow of the past week buoying the overall space.

With issuers stampeding to the market amid improved conditions, new paper remained in focus in the secondary space.

And while the pricing of recent deals was much tighter than what would have been possible two weeks ago, new paper continued to perform well with most trading at or above their issue price.

Service Properties Trust’s (SVC) 8 5/8% senior secured notes due 2031 (B1/BB) and Axalta Coating Systems Ltd.’s 7¼% senior notes due 2031 (B1/BB-) were trading at a healthy premium to their issue prices.

Sealed Air Corp.’s 7¼% senior notes due 2031 (Ba2/BB+) fell flat with the notes wrapped around issue despite a heavy day for the market.

However, some cracks were starting to show with Smyrna Ready Mix Concrete, LLC’s 8 7/8% senior secured notes due 2031 (Ba3/BB-/BB-) falling underwater in heavy volume.

Earnings-related news also continued to spark outsized moves in the space.

Enviva Partners, LP’s 6½% senior notes due 2026 (B1/B) was nearly cut in half after the company issued a going-concern warning with earnings.

Meanwhile, high-yield mutual funds and exchange-traded funds saw a historic inflow over the past week after a year of heavy outflows.

Funds saw $6.26 billion enter the space in the week through Wednesday’s close, according to the Lipper Fund Flow report.

New paper

While the pricing of new deals was much tighter than what would have been possible two weeks ago, new issues continued to put in a solid performance in the aftermarket with most trading at or above issue price.

Service Properties Trust’s 8 5/8% senior secured notes due 2031 were trading at a healthy premium to their discounted issue price.

The 8 5/8% notes traded up to 99 on the break and continued to inch up Thursday despite a soft day for the market.

The notes were wrapped around 99¼ heading into the market close, a source said.

There was $194 million in reported volume.

Service Properties priced an upsized $1 billion, from $800 million, issue of the 8 5/8% notes at 98.59 to yield 8 7/8% on Wednesday.

The yield printed at the tight end of yield talk in the 9% area.

Axalta’s 7¼% senior notes due 2031 also continued to notch gains with the notes marked at par bid, par ½ offered heading into the close, a source said.

There was $38 million in reported volume.

Axalta priced a $500 million issue of the 7¼% notes at par in a Wednesday drive-by.

The yield printed at the tight end of yield talk in the 7 3/8% area.

However, Sealed Air’s 7¼% senior notes due 2031 fell flat in the aftermarket.

The notes were wrapped around their issue price and trading in a tight range of 99 7/8 to par 1/8 throughout the session.

There was $63 million in reported volume.

Sealed Air priced a $425 million issue of the 7¼% notes in a Wednesday drive-by.

The yield printed at the tight end of yield talk in the 7 3/8% area.

Smyrna falls

After a flat start in the aftermarket, Smyrna’s 8 7/8% senior secured notes due 2031 succumbed to the selling pressure in the broader market on Thursday with the newly priced notes sinking below their issue price.

The 8 7/8% notes fell 1 point to close the day on a 99-handle.

They were changing hands in the 99 to 99½ context heading into the market close, a source said.

There was $22 million in reported volume.

The notes have been wrapped around issue price since the $1.1 billion issue priced at par on Tuesday.

Smyrna’s 6% senior secured notes due 2028 continued their downtrend with the notes off another ½ to 1 point.

The 6% notes were trading in the 91 to 91½ context heading into the market close with the yield about 8 1/8%.

Smyrna’s latest offering sparked a repricing of the 6% notes, which were trading on a 93-handle with a yield of about 7 5/8% prior to the pricing of the new notes.

Enviva pulped

Enviva’s 6½% senior notes due 2026 were beaten to a pulp on Thursday after the biomass company reported steep losses and issued a going-concern warning.

The 6½% notes were cut in half.

They dropped 32 points in a single session to close the day wrapped around 32.

The yield jumped to 73¾%.

The notes were trading on a 64-handle with a yield of about 30% heading into earnings.

The company reported a $85.2 million loss for the third quarter and issued a going-concern warning.

The company announced that it was hiring advisers to review its capital structure with the 6½% notes to be included in the review.

Indexes

The KDP High Yield Daily index was down 9 basis points to close Thursday at 48.70 with the yield now 7.86%.

The index was down 3 bps on Wednesday and 1 bp on Tuesday after inching up 1 bp on Monday.

The ICE BofAML US High Yield index fell 27.3 bps with the year-to-date return now 6.803%.

The index was up 7 bps on Wednesday after falling 13.1 bps on Tuesday and 3.2 bps on Monday.

The CDX High Yield 30 index closed Thursday at 102.05.

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