NFP, G-III Apparel price; SeaWorld trades up; Calpine improves; Apache jumps

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 30 – Over $1.5 billion of new paper entered the junk bond market on Thursday, in spite of an announcement about a precipitous decline in the U.S. gross domestic product number for the second quarter.

NFP Corp. brought an upsized $1.25 billion and G-III Apparel Group Ltd. priced an also upsized $400 million.

Meanwhile, the secondary space was volatile on Thursday with the market opening the day down 3/8 to ½ point but closing the day with nominal gains, sources said.

New paper remained in demand with SeaWorld Entertainment, Inc.’s 9½% second-priority senior secured notes due 2025 (Caa2/CCC) trading up to a 101-handle.

Calpine Corp.’s two tranches of senior notes (B) continued to improve with both tranches hitting fresh highs.

Outside of new paper, recent fallen angel Apache Corp. was in focus with the oil and gas company’s capital structure jumping 4 to 8 points following an earnings beat and a new oil discovery.

Meanwhile, fund flows remained positive over the past week although they paled in comparison to the previous week’s $3.9 billion inflow.

High-yield mutual and exchange-traded funds added $295 million through Wednesday’s close, according to Refinitiv Lipper Fund Flows.

Primary market

On Thursday morning the U.S. Commerce Department released its estimate that the gross domestic product for the second quarter of 2020 declined by an epochal, record-shattering 32.9%.

The high-yield new issue market appeared to take the news in stride, a New York-based trader observed later in the day.

Two deals priced during a generally quiet session, one a drive-by and the other a deal that ran a brief roadshow.

Both upsized and came in sharp executions.

NFP Corp. priced an upsized $1.25 billion issue of eight-year senior notes (Caa2/CCC+) at par to yield 6 7/8% in a drive-by.

The issue size increased from $950 million.

The yield printed at the tight end of yield talk in the 7% area. Initial talk had the deal coming to yield in the low 7% area

G-III Apparel Group Ltd., meanwhile, priced an upsized $400 million issue of 7 7/8% five-year senior secured notes (Ba3/BB) at par to yield 7.873%.

The issue size increased from $350 million – an upsize that cost the company a one-notch downgrade from S&P Global Ratings to BB from BB+.

The yield printed tight to yield talk in the 8% area. Initial guidance was 8% to 8¼%.

The deal also underwent covenant changes.

Looking to the Friday session Italy-based financial services company doValue SpA is on deck with a €265 million offering of five-year senior secured notes (BB/BB).

The talk, a 5% coupon at a discount to yield in the 5¼% area, came out Thursday.

SeaWorld trades up

SeaWorld’s 9½% senior notes due 2025 traded up to a 101-handle in high-volume activity on Thursday with the demand for the notes following them into the secondary space.

The 9½% notes were trading in the 101 to 101 3/8 context, a market source said.

More than $45 million of the bonds were on the tape heading into the market close.

The deal was heavily oversubscribed with more than $2.1 billion in orders, a source said.

However, not everyone was enamored with the offering.

While several theme park operators that have priced secured notes in recent months have secured their deals with real estate, SeaWorld’s “crown jewel” is its San Diego theme park which is leased property, a source said.

SeaWorld priced an upsized $500 million issue of the 9½% notes at par on Wednesday.

Pricing came at the tight end of talk for a yield of 9½% to 9¾%, which tightened from earlier talk of 9¾% to 10%.

SeaWorld’s latest offering is the second time the company has tapped the high-yield market since April.

The company priced a $227.5 million issue of 8¾% first-priority senior secured notes due 2025 on April 21.

The 8¾% notes jumped 2 points to 105 after the new offering was launched on Wednesday, a source said.

Moody’s Investors Service upgraded SeaWorld’s secured notes to B2 from B3 as a result of the new offering, which provided the company with an additional cushion for losses, the ratings agency said in a press release.

Calpine improves

Calpine’s recently priced senior notes continued to improve on Thursday.

The power company’s 5% senior notes due 2031 traded as high as 102¾ on Thursday.

However, the majority of round lot prints were in the 101¾ to 102½ context, a source said.

There was more than $14 million of the bonds on the tape.

While volume was lighter, Calpine’s 4 5/8% senior notes due 2029 were also improved with the notes wrapped around 101.

However, the 4 5/8% notes only saw $5 million in reported volume.

With a lower coupon and a shorter maturity, the 4 5/8% notes will trade at a lower level than the 5% tranche, a source said.

Calpine priced an $850 million tranche of the 5% notes and a $650 million tranche of the 4 5/8% notes at par in a Monday drive-by.

Apache jumps

Recent fallen angel Apache’s capital structure jumped 4 to 8 points on Thursday following earnings and a surprise oil discovery off the coast of Suriname.

Apache’s 4¾% senior notes due 2043 were the most active of the structure with the notes gaining more than 8 points to close the day at 93¾, according to a market source.

There was more than $22 million of the bonds on the tape during the session.

The notes were marked in the mid-80s on Wednesday.

Apache’s 5.35% senior notes due 2049 gained 6¾ points to close the day at 94½.

The 4¼% notes due 2044 were up 4½ points to 86½.

The 4 3/8% notes due 2028 were up 3 3/8 points to close the day at 98¾.

The company also announced it had struck a gusher off the coast of Suriname, a market source said.

The find could offer some of the most profitable barrels of oil in the world, Bloomberg reported.

Apache became an official fallen angel in May when Moody’s cut the company to Ba1 from Baa3 due to expected high leverage and lowered returns and cash flow.

S&P downgraded Apache to BB+ from BBB in late March and Fitch Ratings cut the oil and gas company to BB+ from BBB in early June.

$840 million Wednesday inflows

The dedicated high-yield bond funds had $840 million of daily net inflows on Wednesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $755 million of inflows on the day. Of that amount, owing to methodology, $619 million will be reported in weekly funds flows for the week ending Aug. 5.

Actively managed high-yield funds saw $85 million of inflows on Wednesday, the source said.

Indexes

Indexes saw nominal gains on Thursday.

The KDP High Yield Daily index gained 4 basis points to close the day at 66.8 with the yield now 5.72%.

The index was up 13 bps on Wednesday, 6 bps on Tuesday and 2 bps on Monday.

The ICE BofAML US High Yield index was up 19.4 bps with the year-to-date return now negative 0.432%.

The index rose 32.9 bps on Thursday, 1.9 bps on Tuesday and 12.8 bps on Monday.

The CDX High Yield 30 index added 9 bps to close Thursday at 102.79.

The index jumped 78 bps on Wednesday, took off 13 bps on Tuesday, and gained 43 bps on Monday.

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