Junk secondary unmoved by Fed tapering statement; Teva flat; Jane Street on a 101-handle

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 3 – With a backdrop of a slowing new issue primary, it was a quiet day in the secondary high-yield bond space.

The Federal Reserve’s announcement related to bond tapering did little to move the market one way or another.

Equities rallied on the heels of the announcement and Treasuries sold off with the 10-year yield closing the day at 1.606%, which “meant a whole lot of nothing for the [high-yield] market,” a source said.

The market was soft early in the session and improved alongside equities heading into the close; however, there was no major movement in either direction.

While there may be some follow-through in future sessions with the rise in Treasuries, it was business as usual in the secondary space on Wednesday with new paper continuing to dominate the tape.

Jane Street Group, LLC’s 4½% senior secured notes due 2029 (Ba2/BB-) were putting in a strong performance with the notes continuing to trade on a 101-handle.

However, Teva Pharmaceutical Industries Ltd.’s dollar-denominated bonds (Ba2/BB-/BB-) fell flat with the notes wrapped around par.

Slowdown

The dollar-denominated high-yield primary market took a breather on Wednesday, with no issues pricing.

New issue volume has definitely slowed down, a syndicate banker said on Wednesday afternoon.

A lot of the refinancing business that was anticipated in the run-up to Labor Day has already cleared the market, the banker said, adding that right now corporate cash balances appear to be in good shape.

The recent burst of billion dollar-plus tranches, from issuers like Carnival Corp., Altice France, Weatherford International and Teva speak to the present breadth of the market, the banker asserted, but added that there does not seem to be a big stack of megadeals staging, at this time.

Of course, there is every reason in the world for issuers anticipating a need for cash to come sooner than later, the banker said.

Today's rates are not as great as they were at the beginning of the year, however rates appear poised to move higher, the official warned.

As to new issue volume in the run-up to 2022, the present week is probably a good indicator, the syndicate source said.

Gone are the $10 billion to $15 billion weeks of high summer 2021, the banker remarked.

The weeks that remain left to play out in 2021 are more apt to see volume in the range of $6 billion to $8 billion.

The deals

There was a spot of news in the dollar-denominated primary market on Wednesday.

PECF Intermediate Holding III Corp. downsized its two-part offering of high yield notes backing the acquisition of United Site Services (USS) by Platinum Equity to $750 million from $1.3 billion.

A proposed $550 million secured notes tranche was shifted to the concurrent term loan.

Price talk on the remaining $750 million tranche of eight-year senior unsecured notes (Caa2/CCC) is set in the 8% area, at the wide end of early guidance in the high 7% to 8% area.

Pricing is set for Thursday.

Meanwhile the roadshow for the Railworks Holdings $325 million offering of seven-year senior secured second-lien notes (B2/B) is scheduled to wrap up on Thursday.

Initial guidance is in the mid-to-high 8% area.

Late Wednesday the word in the market held that there is $200 million in the order book for the Railworks deal, a trader said.

Finally, while the dollar-denominated market kicked back on Wednesday it was a notably busy day in the euro-denominated junk market (see related stories in this issue).

Jane Street strong

Jane Street’s 4½% senior secured notes due 2029 continued to put in a strong performance in the secondary space.

While the notes were weaker early in the session and traded into a par 7/8 bid, they climbed back to a 101-handle as the market firmed.

The 4½% notes were trading in a tight range between 101 and 101¼ throughout Wednesday afternoon, a source said.

Jane Street priced an upsized $600 million, from $500 million, issue of 4½% senior notes at par on Tuesday.

The yield printed at the tight end of the revised 4½% to 4 5/8% yield talk.

Teva improves

Teva’s dollar-denominated bonds fell flat in the aftermarket with both tranches wrapped around par.

The 4¾% notes due 2027 and 5 1/8% notes due 2029 were both marked at par bid, par ¼ offered heading into the market close.

“They just never got out of their own way,” a source said.

Teva priced a $1 billion tranche of the 4¾% notes and a $1 billion tranche of the 5 1/8% notes at par on Tuesday.

The 4¾% notes priced at the tight end of the 4¾% to 4 7/8% yield talk; the 5 1/8% notes priced at the tight end of the 5 1/8% to 5¼% yield talk.

The dollar-denominated tranches were part of a $5 billion equivalent four-part offering that included a €1.1 billion tranche of 3¾% notes due 2027 and a €1.5 billion tranche of 4 3/8% notes due 2030, which also priced at par.

While the dollar-denominated tranches were wrapped around par in active trading, the euro-denominated tranches were trading on a 99-handle early in the session, a source said.

The deal was heard to have played to $14 billion in demand.

$104 million Tuesday outflows

The dedicated high-yield bond funds saw $104 million of net daily outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $69 million of outflows on the day, a far more modest exodus of cash than the $1 billion-plus that flowed out of the ETFs the day before, the source noted.

Indexes

The KDP High Yield Daily index shaved off 4 points to close Wednesday at 69.56 with the yield now 3.94%.

The index gained 2 points on Tuesday after falling 6 points on Monday.

The CDX High Yield 30 index gained 23 bps to close Wednesday at 109.25. The index gained 21 bps on Tuesday after falling 6 bps on Monday.

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