Morning Commentary: New Spirit Airlines 8% secured notes continue to soar in secondary

By Paul A. Harris

Portland, Ore., Sept. 3 – The new Spirit Airlines, Inc. 8% first-lien senior secured notes due September 2025 (Ba3//BB+) continued what has been a stratospheric performance in the secondary market since the deal price on Wednesday morning, a trader said.

The notes were 103¾ bid, 104 offered on Thursday, up from 103¼ bid, 103¾ offered late Wednesday, after coming at a discount price of 98.976 to yield 8¼% on Wednesday morning.

At a price of 103¾, the trader reckoned that the paper yields around 7% and forecast that the absolute yield of the bond could ultimately fall to 6½% or even 6¼%.

“This is a fine credit, and it came way too cheap,” the trader commented.

The Spirit Airlines deal, backed by assets related to the Florida-based air carrier's customer loyalty program, was heard to be eight-times to 10-times oversubscribed, with investors receiving poor allocations of the new notes.

Spirit followed United Airlines Holdings, Inc., which brought the Mileage Plus Holdings, LLC/Mileage Plus Intellectual Property Assets, Ltd. 6½% senior secured notes due June 2027, backed by United's Mileage Plus customer loyalty program, in late June.

The United notes (Baa3//BBB-) were 104 bid on Thursday, with an implied yield of 5.3%, the trader said.

Away from airlines, the new Tenet Healthcare Corp. 6 1/8% senior notes due October 2028 (Caa1/CCC+/B) were par 5/8 bid on Thursday morning.

The oversubscribed $2.5 billion deal priced at par on Tuesday, in the middle of price talk.

The primary market was shuttered on Thursday morning and is expected to remain so until the conclusion of the upcoming extended Labor Day holiday weekend.

Against a backdrop of red ink in the U.S. stock indexes, with the S&P 500 off nearly 2%, the iShares iBoxx $ High Yield Corporate Bd (HYG) was down a hefty 0.52%, or 44 cents, at $84.81 per share at mid-morning Thursday as the Labor Department reported that 1.6 million new unemployment claims, including 759,000 applications for Pandemic Unemployment Assistance, were filed in the present week, up from 1.4 million the previous week.

In the United States, 29 million people are on unemployment aid.

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