Multi-Color reopens primary; Medical Properties Trust active; Frontier under pressure

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 28 – Following the longest junk issuance drought since the onset of Covid in early 2020 (17 consecutive dormant sessions) the dollar-denominated new issue market came to life on Tuesday as LABL, Inc., which does business as Multi-Color Corp., priced a $300 million issue of senior secured notes due Nov. 1, 2028 at par to yield 9½% in a drive-by.

The yield printed at the tight end of the 9½% to 9¾% yield talk. Initial guidance was in the 10% area.

The issue was heard to have been playing to $1.9 billion of demand, according to a trader who added that there had been $200 million of reverse inquiry.

Timing was accelerated. When announced on Tuesday morning the deal was expected to remain in the market until Wednesday.

In the wake of LABL the active forward calendar stood empty.

However a shadow calendar is taking shape, market sources say.

A group of dealers led by Goldman Sachs is heard to be preparing to sell approximately $4 billion of second-lien debt from last year’s LBO of Citrix Systems Inc. that was hung up during the second half of 2022 amid deteriorating market conditions.

And Altice USA could elect to come with an issue of guaranteed notes, according to a market source who added that the company does have alternatives to the high-yield primary.

Altice USA has revolver capacity and also generates free cash, the source said.

There was activity in that name on Tuesday, according to a bond trader in New York.

Meanwhile, it was a relatively uneventful day in the secondary space with the cash bond market either side of unchanged as the market looks to its next major catalyst – earnings.

This earnings season will have special significance with the Federal Reserve and financial markets at odds over the state of the economy and the future trajectory of rates.

The Federal Reserve has maintained that the economy is strong while Treasuries “are telling us a recession is already here,” a source said.

Corporate balance sheets and forward guidance are expected to help settle the debate.

The trickle of earnings released thus far have been positive with Carnival Corp. lifted on Monday on a surprise revenue beat.

Condor Merger Sub, Inc.’s (McAfee Corp.) 7 3/8% senior notes due 2030 (Caa2/CCC+) were stronger on Tuesday after McAfee produced better-than-expected numbers.

While the broader market awaited greater clarity about the state of the economy, topical news and end-of-quarter clean-up dominated activity in the space.

Medical Properties Trust Inc.’s 5% senior notes due 2027 (Ba1/BB+) were active although little changed with the formerly split-rated issue downgraded to junk earlier in the month.

Frontier Communications Holdings, LLC’s capital structure was under pressure in active trade on Tuesday after an analyst downgrade of stock sent stock spiraling over the past two sessions.

McAfee gains

McAfee’s 7 3/8% senior notes due 2030 were stronger on Tuesday after reporting earnings.

The 7 3/8% notes rose ½ point to trade in the 80¾ to 81 context, a source said.

The yield was just shy of 11½%.

McAfee’s 7 3/8% notes were among the worst performing new issues of 2022.

The $2.02 billion issue priced at par in February 2022 to help fund McAfee’s buyout by a consortium of private equity firms.

The notes have been hovering near their all-time low of 78 for much of March.

However, they have been on an uptrend since last week and were changing hands in the 79½ to 80 context heading into Tuesday’s session.

Medical Properties active

Medical Properties’ 5% senior notes due 2027 were active although with little movement in price on Tuesday.

The 5% notes continued to trade in the 79½ to 80 context with the yield about 10¾%, according to a market source.

There was $27 million in reported volume.

The 5% notes have largely traded between 79 and 80 since March 10 when S&P slashed its unsecured notes credit rating to BB+ from BBB-.

Frontier under pressure

Frontier’s capital structure was under pressure on Tuesday with its secured and unsecured notes falling ½ to 2½ points in heavy volume.

Frontier’s 8 5/8% first-lien senior secured notes due 2031 (B3/B/BB+) sank 2½ points to close the day at 95¾, according to a market source.

The yield rose to 9 3/8%.

There was $16 million in reported volume.

Frontier’s 6% senior notes due 2030 (Caa2/CCC+) were off ½ point to close the day at 74½.

The yield rose to 11½%.

There was $13 million.

The 6¾% senior notes due 2018 fell 2 points to 76.

There was $13 million in reported volume.

Frontier was under pressure after an analyst downgrade led to a 12% drop in stock over the past two sessions.

The telecommunications sector has been an underperformer in 2023, a source said.

Indexes

The KDP High Yield Daily index fell 10 points to close Tuesday at 50.87 with the yield now 7.51%.

The index inched up 2 points on Monday.

The ICE BofAML US High Yield index was down 12.3 bps with the year-to-date return now 1.869%.

The index gained 15.1 bps on Monday.

The CDX High Yield 30 index fell 27 bps to close Tuesday at 99.61.

The index gained 55 bps on Monday.

Fund flows

The dedicated high-yield bond funds sustained $207 million of net daily cash outflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $137 million of outflows on the day.

Actively managed high-yield funds sustained $90 million of outflows on Monday, the source said.

The combined funds are tracking $122 million of net outflows on the week that will conclude with Wednesday's close, according to the market source.

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