Tenneco on junk deck; Rain Carbon outperforms; Veritext gains; Frontier rises on earnings

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 4 – The domestic high-yield primary market was quiet on Friday with the exception of one long-awaited announcement.

Tenneco Inc. scheduled an investor call to address some of the hung debt from Apollo’s leveraged buyout of the company in 2022.

While only one deal remains on the forward calendar – Greystar Real Estate Partners, LLC’s $400 million offering of seven-year senior secured notes – sources expect additional deals to surface in the week ahead, such as SeaWorld Parks and Entertainment Inc.’s already telegraphed $750 million offering of five-year senior secured notes.

Meanwhile, the secondary space closed the week on firm footing with the cash bond market adding ¼ to 3/8 point following the latest U.S. nonfarm payrolls report, which presented a mixed picture of the labor market.

While job growth came in below expectations in a sign of a cooling labor market, wage growth came in higher than anticipated.

Many market players interpreted the report as further evidence that a soft landing for the economy was in store.

While the broader market rebounded after the midweek selling sparked by Fitch Ratings’ downgrade of U.S. long-term debt, new issues and earnings continued to keep the market moving.

Rain Carbon Inc.’s new 12¼% senior secured second-lien notes due 2029 (B3/B) outperformed in light volume with market players chasing the chunky yield offered by the tightly allocated notes.

VT TopCo, Inc.’s (Veritext) new 8½% senior secured notes due 2030 were also putting in a strong aftermarket performance with the notes continuing to rise after a strong break.

Carnival Corp.’s recently priced 7% first-priority senior secured notes due 2028 (Ba2/BB-) continued to improve in heavy volume with the notes lifted by improved market conditions.

Frontier Communications Holdings LLC’s senior notes were the major gainers of Friday’s session after the telecommunications company posted earnings.

Tenneco on deck

In Friday’s sole primary market news nugget Tenneco scheduled an investor conference call at 10:30 a.m. ET on Monday, as it plans to return with debt related to the buyout of the company by Apollo.

That became hung up, due to market conditions, late last year.

Tenneco plans to bring new senior secured notes and a new term loan B.

BofA Securities, Inc. will lead the bonds.

Also in the week ahead Greystar Real Estate Partners plans to price a $400 million offering of seven-year senior secured notes, in the market with initial guidance in the 8% area.

Pricing is set for Monday.

The Greystar deal came into the market with $300 million of reverse inquiry behind it, a sellside source said.

Meanwhile, since early in the past week market watchers have expected to hear details on a telegraphed $750 million offering of five-year senior secured notes from SeaWorld Parks and Entertainment, pre-marketed at 6 3/8% to 6½%.

The bond deal is something of a question mark, according to sources who say that investors are not crazy about the SeaWorld deal at 6½%.

What’s more, they say, the company is known to be price-sensitive.

On Friday the market heard that the Orlando, Fla.-based theme park and entertainment company withdrew a proposed $665 million term loan B.

Rain Carbon outperforms

Rain Carbon’s new 12¼% senior secured second-lien notes due 2029 outperformed in the aftermarket with the notes jumping to a 102-handle.

The notes launched the day at 102 bid, 102¼ offered and continued to climb as the session progressed.

They were trading in the 102¼ to 102¾ context heading into the market close, a source said.

However, there was only $14 million in reported volume with the notes largely tucked away, sources said.

Supply and demand was helping to drive the notes’ aftermarket performance with investors chasing the chunky yield, a source said.

Rain Carbon priced a $450 million issue of the 12¼% notes at par on Thursday.

The yield came at the tight end of talk for a yield 12¼% to 12½%.

Veritext improves

Veritext’s new 8½% senior secured notes due 2030 (B2/B/B+) continued to improve on Friday after a strong break with the notes closing the day on a 101-handle.

The 8½% notes gained ¼ to 3/8 point to close the day in the 101¼ to 101½ context, according to a market source.

They went out the previous session at par ¾ bid, 101 offered.

Veritext priced a downsized $500 million, from $720 million, issue of the 8½% notes at par on Thursday.

The yield printed at the tight end of the 8½% to 8¾% yield talk.

Carnival improves

Carnival’s recently priced 7% first-priority senior secured notes due 2028 continued to improve as market conditions stabilized.

The 7% notes gained ¼ point to trade in the par ½ to par ¾ context heading into the market close.

Carnival priced a $500 million issue of the 7% notes at par on Tuesday.

While the notes fell flat on the break, they were able to gain a nominal premium on Wednesday, despite the heavy market conditions, and have steadily improved since.

Frontier’s earnings

Frontier’s senior notes were the major gainers of Friday’s session with the notes gaining 2 to 4 points on the heels of an earnings beat.

Frontier’s 6¾% second-lien secured senior notes due 2029 (Caa2/CCC+) had the largest price movement in the debt stack with the notes up about 3¾ points.

They were changing hands at 78¼ heading into the market close with the yield about 12 1/8%, according to a market source.

There was $5 million in reported volume.

The 6% senior notes due 2030 (Caa2/CCC+) added 3 points to close the day at 74¾ with the yield falling to 11 5/8%.

There was $6 million in reported volume.

Frontier’s 8 5/8% first-lien senior secured notes due 2031 (B3/B) added 2 points to close the day at 96 with the yield now 9 3/8%.

There was $3 million in reported volume.

The 5% first-lien secured notes due 2028 (B3/B) added 2 points to close the day at 85½ with the yield 8 7/8%.

There was $8 million in reported volume.

Frontier bounced after reporting earnings with the telecom posting adjusted EBITDA of $533 million versus analyst expectations for EBITDA of $530.3 million.

Fund Flows

The dedicated high-yield bond funds had muted net daily cash inflows of $71 million on Thursday, the most recent session for which data was available at press time, according to a market source.

That amount, in its entirety, was taken in by the high-yield ETFs, the source said, adding that the flows of the actively managed high-yield funds were absolutely flat on the day.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds sustained $1.013 billion of net outflows in the week to the Wednesday, Aug. 2 close, according to fund tracker Refinitiv Lipper.

It was the fifth negative weekly cash flow that the funds reported in the past six weeks, according to the market source who added that total net outflows during that six-week interval come to a relatively modest $566 million.

Indexes

The KDP High Yield Daily index gained 29 basis points to close Friday at 50.39.

The index fell 23 bps on Thursday, 18 bps on Wednesday and 17 bps on Tuesday after inching up 2 bps on Monday.

The ICE BofAML US High Yield index gained 36.3 bps with the year-to-date return now 6.262%.

The index was down 27.8 bps on Thursday, 43.3 bps on Wednesday and 30.6 bps on Tuesday.

The CDX High Yield 30 index fell 18 bps to close Friday at 102.48.

The index was down 8 bps on Thursday, 44 bps on Wednesday and 36 bps on Tuesday.

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