Endo, Tempur Sealy price deals; AAdvantage in focus; funds lose $5.33 billion

By Paul A. Harris and Abigail W. Adams

Portland, Ore., March 11 – A busy Thursday in the primary market had four issuers drive by with single tranche dollar-denominated junk deals, raising a combined $3.14 billion.

Meanwhile, it was a strong day in the secondary space on Thursday as the 10-year Treasury benchmark briefly dipped below the 1.5% threshold in intraday activity.

New paper remained in focus with American Airlines, Inc. and its AAdvantage Loyalty IP Ltd.’s two tranches of senior notes (Ba2//BB) dominating trading activity.

The two tranches continued to gain after soaring on the break during Wednesday’s session.

American Airlines’ mammoth bond offering lifted the airline’s outstanding senior notes with the 11¾% senior notes due 2025 making large gains in active trading.

While Thursday was a strong day, it followed a period of softness with outflows making a dent in the market.

High-yield mutual and exchange traded-funds had a massive $5.331 billion leave the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flow Report.

Drive-by issuers

In the wake a massive megadeal on Wednesday, the Thursday primary rebounded and was ready to absorb new paper with four issuers successfully driving through with $3.14 billion of new notes.

Two of the four deals were upsized.

Executions continued to tend toward the tights, with three tranches coming at the tight ends of talk, and one coming in the middle of talk.

Endo International plc priced the session's biggest deal, an upsized $1.295 billion issue (from $1 billion) of 6 1/8% eight-year senior secured first-lien notes (B3/B+) at par, at the tight end of talk.

The deal was heard to be playing to $4.9 billion of demand.

Tempur Sealy International, Inc. priced an $800 million issue of 4% eight-year senior notes (B1/BB) at par, in the middle of talk, playing to $2.1 billion of demand across 114 accounts.

Entercom Communications Corp. priced an upsized $540 million issue (from $500 million) of 6¾% eight-year senior secured second-lien notes (B3/B-) at par, at the tight end of talk.

The deal was heard to be three-times oversubscribed.

And Scotts Miracle-Gro Co. priced a $500 million issue of 4% 10-year senior notes (B1/B+) at par, at the tight end talk.

The deal was head to be playing to $1.4 billion of demand across 108 accounts.

The new issue market figures to be active on Friday.

Pitney Bowes Inc. set price talk in its $800 million two-part offering of guaranteed senior notes (B1/BB) on Thursday.

The deal is coming in tranches of six-year notes talked to yield 6 5/8% to 6 7/8%, versus initial guidance in the mid-to-high 6% area, and eight-year notes talked to yield 7% to 7¼%. Initial guidance had the eight-year notes coming 37.5 basis points behind the six-year notes.

Tranche sizes remain to be determined (see related stories in this issue).

Also United Arab Emirates-based Shelf Drilling Holdings Ltd. is in the market with double-digit whisper on its $300 million of senior secured first-lien notes due Nov. 15, 2024 (B2), a deal expected to play to high-yield and emerging markets accounts.

Pending official talk, the guidance is in the high 9% to 10% area.

Pitney Bowes and Shelf Drilling are both expected to clear ahead of the weekend.

American’s AAdvantage

American Airlines/AAdvantage Loyalty’s two tranches of senior notes dominated activity in the secondary space with the notes continuing to gain after skyrocketing on the break the previous session.

The 5½% senior notes due 2026 continued to trade on a 103-handle.

They traded in a range of 103 1/8 to 103 5/8 during Thursday’s session after closing out the previous day at 103 bid, sources said.

The yield on the notes was now 4.74%.

The 5¾% senior notes due 2029 remained on a 105-handle and traded in a range of 105¼ to 105 7/8 during the session.

They closed the previous session at 105 bid.

The yield on the 5¾% notes was now 4½%, a source said.

“They had a massive move,” a source said.

While American Airlines is one of the worst credits in a struggling industry, the new notes offering was rated BB and carried a nice yield, a source said.

The struggles are also considered temporary especially with the vaccine rollout, a source said.

The airlines priced a $6.5 billion two-tranche offering of amortizing senior notes on Wednesday.

The deal included an upsized $3.5 billion, from $2.5 billion, tranche of the 5½% notes and an upsized $3 billion, from $2.5 billion, tranche of the 5¾% notes, both of which priced at par.

The 5½% notes priced tighter than talk for a yield in the 5¾% area; the 5¾% notes priced tighter than talk for a yield in the 6% area.

American gains

American Airlines’ mammoth new offering lifted its outstanding notes.

The 11¾% senior notes due 2025 rose more than 2 points to 122 in active trading, according to a market source.

There was more than $28 million of the bonds on the tape.

$2.23 billion Wednesday inflows

High-yield ETFs saw a whopping $2.23 billion of net daily inflows on Wednesday, the most recent session for which data was available at press time, according to a market source.

The ETFs, which represent the fast money in the high-yield market, made themselves felt in Thursday trading, a junk bond trader said, adding that the Thursday session was replete with a copious amount of offers-wanted-in-competition (OWICs), mostly from the ETFs.

Actively managed high-yield funds were negative on the day, sustaining $250 million of outflows on Wednesday, the source said.

News of Wednesday's cash flows came ahead of a Thursday report that the combined high-yield funds sustained massive outflows of $5.33 billion in the week to Wednesday's close, according to information posted on the Internet by the Refinitiv Lipper Fund Flow Report Newsline.

Indexes gain

Indexes were on the rise on Thursday.

The KDP High Yield Daily index gained 12 points to close Thursday at 69.27 with the yield now 4.11%.

The yield was down 4 points on Wednesday, 5 points on Tuesday and 7 points on Monday.

The ICE BofAML US High Yield index gained 34.2 bps with the year-to-date return now 0.719%.

The index was down 2 bps on Wednesday, 8.8 bps on Tuesday and 4.5 bps on Monday.

The CDX High Yield 30 index gained 21 points to close Thursday at 108.88.

The index gained 47 bps on Wednesday and 16 bps on Tuesday after dropping 61 bps on Monday.

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