Two junk deals price; Carvana lags; QTS, Centene, GCI flat; funds lose $4.22 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 24 – A pair of issuers priced single dollar-denominated tranches in the high-yield primary on Thursday, raising a combined total of $1.1 billion.

Meanwhile, losses continued to mount for the secondary space with selling pressure continuing to drive the market lower.

With an influx of new issuance, new paper once again dominated the tape.

However, in stark contrast to previous weeks where the majority of new deals performed well in the aftermarket, the new paper was flat to lagging their issue prices.

Carvana Co.’s two tranches of senior notes (Caa2/CCC+) were seen well below their issue price.

Centene Corp.’s 3% senior notes due 2030 (Ba1/BBB-/BB+), QTS Realty Trust, Inc.’s 3 7/8% senior notes due 2028 (Ba3/BB) and GCI, LLC’s 4¾% senior notes due 2028 (B3/B) fell flat in active trading.

However, Global Partners LP’s 6 7/8% senior notes due 2029 (B2/B+) were putting in a strong performance with the notes trading with a healthy premium.

Meanwhile, funds saw their first substantial outflow since July.

High-yield mutual and exchange-traded funds saw $4.217 billion leave the space through Wednesday’s close.

$1.1 billion in primary

Primary new deal action in the high-yield market on Thursday consisted of $1.1 billion of issuance from two transactions.

Both deals came at the conclusions of roadshows.

One upsized and one downsized.

Executions had one deal pricing in the middle of talk while the other came at the wide end of talk.

As the Sept. 21 week wore on, the razor-sharp executions of August and early September gave way to more challenging ones, perhaps reflecting the uncertainties that have taken hold of the markets, such as growing concerns about new waves of coronavirus infections, as well as economic uncertainties and intensifying political dissonance in the United States, a trader remarked.

And also concerns in the high-yield market, in particular, about continuing cash outflows, the source added (see below).

Global Medical Response Inc. priced a downsized $600 million (from $740 million) issue of 6½% five-year senior secured notes (B2/B) at the wide end of talk.

The deal broke to par ¼, according to one trader.

Later, another trader had the new 6½% notes on either side of par, 99¾ bid, par ¼ offered, in “sloppy” trading.

Also PennyMac Financial Services, Inc. priced an upsized $500 million (from $400 million) issue of 5 3/8% five-year senior notes (B2/B+) in the middle of official talk but wide to initial talk (see related stories in this issue).

Thursday's action left one deal on the active forward calendar.

Varex Imaging Corp. was on a Tuesday through Thursday roadshow for its $300 million offering of seven-year senior secured notes (B1/B).

As the market awaits official price talk, early guidance was in the low 7% area.

Also on Thursday, people were removing from their active calendars the Aethon United $700 million offering of five-year senior notes (B3/B-), a debt refinancing deal that was part of a roadshow started well over a week ago, with initial guidance in the high 8% to 9% area.

There was no postponement press release from the company, which did not immediately return a Thursday afternoon telephone call from Prospect News.

If the deal turns out to have been postponed the Dallas-based oil and gas company will be the first prospective high-yield issuer to be sent packing since Diamond Resorts International Inc. canceled its $525 million offering of six-year senior secured notes (B3/B-) on July 24.

Carvana lags

Carvana’s two tranches of senior notes were lagging their issue price in high volume activity.

The 5 5/8% senior notes due 2025 traded as low as 97¼ during Thursday’s session.

However, the notes were on a 98-handle heading into the market close, a source said.

The 5 7/8% notes also traded down to 97¼ but were changing hands in the 98 to 98½ context heading into the market close.

Both tranches had about $50 million in reported volume.

The pricing was tight for unsecured notes from a CCC-credit, a source said.

While the deal struggled in the aftermarket, it was heard to be in demand during bookbuilding with the deal as much as 3x oversubscribed, a source said.

The online car buying and financing platform priced a $500 million tranche of the 5 5/8% notes and a $600 million tranche of the 5 7/8% notes at par on Wednesday.

The 5 5/8% notes priced at the tight end of talk in the 5¾% area; the 5 7/8% notes priced at the tight end of talk in the 6% area.

The overall size of the deal increased from $1 billion.

Flat

With the market heavy, several deals were flat in the aftermarket.

Centene’s 3% senior notes due 2030 traded in a range of 99½ to par ½ during Thursday’s session.

However, the notes were changing hands in the par to par 3/8 context heading into the market close, a source said.

The bonds had more than $140 million in reported volume.

Centene priced a $2.2 billion issue of the 3% notes at par on Wednesday.

The yield printed in the middle of yield talk in the 3% area.

Had it not been for the weakness in the market on Wednesday, the split-rated notes probably could have priced with a 2-handle, a source said.

QTS’ 3 7/8% senior notes due 2028 traded as low as 98¾ on Thursday.

However, the notes were changing hands in the 99½ to par context heading into the market close.

There was $37 million in reported volume during Thursday’s session.

QTS priced an upsized $500 million issue of the 3 7/8% notes at par on Wednesday.

Pricing came at the wide end of the 3¾% to 3 7/8% yield talk.

GCI’s 4¾% senior notes due 2028 were also largely wrapped around par in active trading on Thursday.

The notes were marked at 99¾ bid, par ¼ offered heading into the market close.

There was more than $45 million in reported volume during the session.

GCI priced an upsized $600 million issue of the 4¾% notes at par on Wednesday.

Pricing came in the middle of talk for a yield in the 4¾% area.

The issue size increased from $350 million.

Global Partners at a premium

While the majority of deals to clear the market on Wednesday saw a lackluster reception in the secondary space, Global Partners’ small issue was performing well.

Global Partners’ 6 7/8% senior notes due 2029 traded in a range of par 1/8 to 101 1/8 during Thursday’s session.

The notes were changing hands in the par 7/8 to 101 1/8 context heading into the market close.

The bonds saw more than $35 million in reported volume.

The small size of the issue was helping to drive demand in the aftermarket, a source said.

Global Partners priced a $350 million issue of the 6 7/8% notes at par on Wednesday.

Pricing came at the tight end of yield talk in the 7% area.

$1.05 billion Wednesday outflows

The dedicated high-yield bond funds saw $1.05 billion of net daily outflows on Wednesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $488 million of outflows on the day.

Actively managed high-yield funds saw $565 million of outflows on Wednesday, the source said.

All five sessions in the present reporting week, Thursday Sept. 17 to Wednesday Sept. 23, inclusive, had negative cash flows in the dedicated high-yield bond funds, the source recounted.

That fact was reflected in the $4.22 billion of net outflows for the week to Wednesday's close, reported Thursday by the Refinitiv Lipper Fund Flow Report Newsline.

That's the biggest weekly outflow since the week ending July 1, which had $5.55 billion of net outflows, according to the market source.

Indexes down

Indexes continued to tick down on Thursday.

The KDP High Yield Daily index dropped 28 basis points to close Thursday at 65.96 with the yield now 5.79%.

The index was down 22 bps on Wednesday, 32 bps on Tuesday and 27 bps on Monday.

The ICE BofAML US High Yield index crossed the negative 1% return threshold on Thursday after turning negative as recently as Monday.

The index dropped 54.2 bps with the year-to-date return now negative 1.055%.

The index was down 16.1 bps on Wednesday, 14.3 bps on Tuesday and 69.6 bps on Monday.

The CDX High Yield 30 index shaved off 2 bps to close Thursday at 104.54.

The index sank 104 bps on Wednesday, was down 18 bps on Tuesday and 71 bps on Monday.

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