Community Health Systems, OneMain, Vistra drive-by; Bread Financial joins calendar; CVR struggles

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 11 – An active Monday session in the high-yield primary market saw three issuers price a $2.05 billion total face amount of junk.

Each issuer brought a single speculative grade-rated tranche.

All three were quick-to-market issuers.

All tranches upsized.

Vistra Operations Co. LLC priced an upsized $750 million of high-yield and investment-grade notes.

The high-yield tranche comprised an upsized $350 million add-on (from $250 million) to the 7¾% senior unsecured notes due Oct. 15, 2031 (Ba2/BB/BB) that priced at 102 resulting in a 7.405% yield.

The tranche size increased from $250 million.

The issue price came at the rich end of the 101.75 to 102 price talk. Initial talk was in the 101½ area.

The junk tranche was around two times oversubscribed, with real-money investors making up the greater part of the book, according to a bond trader who added that there appeared to be no flippers as the junk tranche broke for trading.

Late Monday afternoon the 7¾% add-on bonds were hanging around issue price at 102 bid 102 3/8 offered, the trader said.

The investment-grade tranche comprised an upsized $400 million add-on (from $250 million) to the 6.95% senior secured first-lien notes (Baa3/BBB-/BBB-) that priced with a 240 basis points spread to Treasuries.

Elsewhere, Community Health Systems, Inc. priced an upsized $1billion issue(from $750 million) of eight-year senior secured notes (Caa1/B-/B+) at par to yield 10 7/8%, at the tight end of talk.

Prior to price talk circulating the deal was playing to $2 billion of demand, a trader said.

And OneMain Finance Corp. priced a massively upsized $700 million issue (from $400 million) of 7 7/8% 6.25-year senior notes (Ba2/BB/BB+) at 99.413 to yield 8%.

The yield printed in the middle of yield talk in the 8% area.

Meanwhile Bread Financial Holdings, Inc. is expected to price a $500 million offering of 5.25-year senior notes (Fitch: BB-) on Tuesday.

Initial guidance has the notes coming to yield in the low-10% area.

The deal is expected to go well, according to a trader who noted that the Ohio-based financial services company has pending notes maturities in 2024 and 2026, both of which had previously been non-rated.

However ratings are planned for the new issue, as well as the notes maturing in 2026, rendering both issues index-eligible, which will almost certainly broaden investor interest in the new deal, the trader said.

Meanwhile, it was a sideways day in the secondary space on Monday with few making moves ahead of the latest Consumer Price Index report on Tuesday and the last Federal Open Market Committee meeting of 2023.

The cash bond market was largely unchanged on the day, although the tone remained firm with spreads and returns at the height of the year, a source said.

The phenomenal rally in the market since mid-November has been driven by the general consensus that the Fed’s rate hike campaign has come to an end.

However, the CPI report and Fed announcement will be a test to current market expectations for rate cuts in 2024, a source said.

While the market awaited the next big catalyst for movement, new and recent issues and topical news drove activity in the secondary space.

While the majority of deals to price in the flurry of recent issuance have put in solid aftermarket performances, signs of fatigue were setting in.

CVR Energy Inc.’s 8½% senior notes due 2029 (B1/B+/BB-) struggled in the aftermarket with the notes trading firmly below their issue price.

Topical news continued to drive large price movements in the secondary space with Macy's Retail Holdings LLC’s senior notes (Ba2/BB+) popping on a takeover offer.

CVR struggles

CVR Energy’s recently priced 8½% senior notes due 2029 struggled in the aftermarket with the notes falling firmly below their issue price in active trade on Monday.

The 8½% notes were off ¾ to 1 point to break below a 99-handle.

They were trading in the 98 5/8 to 99 context heading into the market close, a source said.

CVR Energy priced a $600 million issue of the 8½% notes at par last Friday.

Pricing came at the midpoint of talk for a yield in the 8½% area.

Macy’s jumps

Macy’s senior notes were in focus on Monday, popping 3 to 5 points in intraday activity following news of a takeover offer.

Macy’s 6 1/8% senior notes due 2032 shot up 5 points early in the session to trade as high as 94¼.

However, the notes gave back some of their early gains to close the day in the 92½ to 93½ context, a source said.

The yield was about 7¼%.

The retailer’s 5 7/8% senior notes due March 2030 also shot up about 5 points in early trade.

The notes traded as high as 95 before settling to close the day up 2½ points in the 92½ to 93 context, a source said.

The yield was 7 3/8%.

Macy’s senior notes were in focus after the retailer received a takeover offer from Arkhouse Management and Brigade Capital Management.

The investor group is offering $21 a share or $5.8 billion to take the retailer private.

Indexes

The KDP High Yield Daily index was down 7 bps to close Monday at 49.48 with the yield 7.34%.

The index added 2 bps on the week last week.

The ICE BofAML US High Yield index shaved off 4 bps with year-to-date returns now 10.067%.

The index posted a cumulative gain of 54.8 bps on the week last week.

The CDX High Yield 30 index inched up 1 bp to close Monday at 103.95.

The index posted a cumulative loss of 23 bps on the week last week.

Fund flows

High-yield ETFs sustained $159 million of daily cash outflows on Friday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds saw $15 million of inflows on the day.

The year-to-date cash flows of the dedicated high-yield bond funds now stand at negative-$10 billion, the market source said.

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