Morning Commentary: Rent-A-Center bonds scream to 104 1/8 bid as risk continues to rally

By Paul A. Harris

Portland, Ore., Feb. 5 – Fixed income investors with a voracious appetite for risk remain at the controls of the red hot high-yield bond market, a trader said on Friday.

Indicators include razor sharp executions, new issues skyrocketing into the secondary market and big cash inflows into the asset class, the source said, marking the broad market ¼ point higher on Friday morning.

Bonds priced Thursday by Rent-A-Center, Inc., the 6 3/8% senior notes due 2028 (B2/B), soared 4 points and change, trading at 104 1/8 bid, 104 3/8 offered on Friday morning, the trader said.

The Thursday drive-by turned into an exercise in rate-chopping. The wide end of early guidance was 7¼%. The final print was 6 3/8%, 12.5 basis points inside of final price talk.

The $450 million issue, which priced at par, was heard to have played to $2.1 billion of demand across 100 accounts.

Bonds priced earlier in the week by Clear Channel Outdoor Holdings, Inc. (CCO), the 7¾% senior notes due April 2028 (Caa2/CCC), were turning in a notable secondary market performance, if not quite as stratospheric as that of the Rent-A-Center paper.

The Clear Channel bonds, which came at par in a $1 billion issue on Tuesday, were 101¼ bid, 101¾ offered on Friday morning.

The appetite for the market's most aggressive structures, the PIK toggle holdco dividend deals – four of which have surfaced since late last year – also remains healthy, the trader said.

The White Cap Supply Holdings, LLC/White Cap Parent, LLC (White Cap HoldCo) 8¼%/9% senior PIK toggle notes due March 2026 (Caa1/CCC+) were 101 1/8 bid, 101 3/8 offered on Friday morning.

The $300 million deal, backing a dividend to owners Clayton Dubilier & Rice and the Sterling Group, priced at 99.463 on Jan. 28.

In the Friday primary market one issue was teed up to clear ahead of the coming weekend.

Great Western Petroleum, LLC and Great Western Finance Corp. are on deck with a $350 million offering of five-year senior secured second-lien notes.

Price talk specifying an 11¼% coupon at an issue price of 97.5 to yield approximately 11.93%, along with document changes, surfaced Thursday.

The Colorado-based company’s operations are understood to have taken a turn for the better, the trader said.

Nevertheless, Great Western Petroleum's existing bonds are trading at distressed levels, in the 60s, the source added.

This is basically an amend-and-extend deal, and the hedge funds are having a look, the trader said.

Thursday inflows

The dedicated high-yield bond funds saw $100 million of daily net inflows on Thursday, according to a market source.

High-yield ETFs saw $160 million of inflows on the day.

However actively managed high-yield funds were negative on Thursday, sustaining $60 million of outflows on the day, the source said.

News of Thursday’s daily flows follows a Thursday afternoon report that the combined funds saw $1.337 billion of net inflows in the week to the Wednesday, Feb. 3, close, according to the Refinitiv Lipper Fund Flow Report Newsline.

That weekly inflow was the largest since mid-November, according to the market source, who added that six of the past seven weekly flows were negative.

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