Junk secondary unmoved by CPI; CCO Holdings, Uniti hit new lows; Level 3 rebounds

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 14 – The domestic high-yield primary market remained dormant on Tuesday with new deal activity for the week expected to fall well-short of previous estimates of $7 billion in new issuance.

Talk surfaced on the sole deal on the forward calendar – the Skill BidCo ApS offering of senior notes backing the buyout of Scan Global Logistics.

However, the dollar-denominated tranche is no longer expected.

Meanwhile, it was another flat day in the secondary space with the cash bond market either side of unchanged following the release of January’s Consumer Price Index report.

The report came in hotter than anticipated with an all-items increase of 6.4% versus the 6.2% expected and a core CPI reading of 5.6% versus the 5.5% expected.

The market focus remains firmly planted on the Federal Reserve.

“It’s still very much a macro trade,” a source said. “Everyone wants to know when rates will come down.”

However, the latest CPI reading proved to be a non-event that did little to provide clarity to an uncertain market, a source said.

New and recent issues remained active on Tuesday with Charter Communications, Inc. subsidiaries CCO Holdings, LLC and CCO Holdings Capital Corp.’s recently priced 7 3/8% senior notes due 2031 (B1/BB-) hitting a new low in secondary market activity.

Uniti Group LP, Uniti Fiber Holdings Inc., Uniti Group Finance 2019 Inc., CSL Capital, LLC’s 10½% senior secured notes due 2028 (B2/B/BB+) continued their downtrend with the notes now firmly below their issue price after a strong start in the aftermarket.

Outside of recent issues, Lumen Technologies subsidiary Level 3 Financing, Inc.’s senior notes were on the rebound in active trade after the notes hit a historic low following disappointing earnings.

Great expectations

As the capital markets digested a January Consumer Price Index report indicating that inflation remains afoot in the U.S. economy, the high-yield new issue bourse generated a paucity of news on Tuesday.

News at last surfaced on the sole deal that remained on the active forward calendar from last week.

Skill BidCo ApS talked €725 million to €750 million of five-year senior secured floating-rate notes (B/B+) with a 675 basis points to 700 bps spread to Euribor at OID 98.

The deal, backing the buyout of Denmark-based Scan Global Logistics by CVC Capital Partners, is expected to allocate on Wednesday.

Earlier the deal had been in the market with provision for a possible dollar-denominated tranche, sources said.

Pareto Securities is the lead.

The market anticipated as much as $7 billion of new issuance during the Feb. 13 week, a trader said on Tuesday, adding that such an amount is not terribly likely to surface during the Wednesday through Friday period, as the year's previous weeks have seen the primary market table set on Mondays and Tuesdays.

CCO’s new low

CCO Holdings’ recently priced 7 3/8% senior notes due 2031 continued their downward trend in secondary market activity with the notes hitting their lowest level since breaking for trade.

The 7 3/8% notes were off ½ to 5/8 point in active trading.

The notes broke below a 99-handle and were trading in the 98½ to 99 context heading into the market close, a source said.

The notes were among the most actively traded issues in the secondary space with $33 million in reported volume.

The notes have largely struggled in the aftermarket.

While they climbed as high as 102 in the post-Fed surge in risk assets on Feb. 2 and 3, they quickly gave up their gains.

The notes fell to a 99-handle amid the heavy market conditions of last Friday.

CCO priced a $1.1 billion issue of the 7 3/8% notes at par on Jan. 30.

Uniti’s downtrend

Uniti’s 10½% senior secured notes due 2028 continued to fall in the aftermarket with the once strong notes now trading on a 99-handle.

The 10½% notes were off 3/8 to ½ point.

They were changing hands in the 99 3/8 to 99 5/8 context heading into the market close, a source said.

There was $29 million in reported volume.

The 10½% notes have given back all gains since a strong start in the aftermarket.

The notes, which priced at par on Feb. 2, were trading in the 101½ to 102 context until late last week.

The notes broke below a par-handle on Monday.

Rebound

Level 3’s senior notes were on the rebound on Tuesday after hitting historic lows following disappointing earnings from parent company Lumen late last week.

The 3.4% senior secured notes due 2027 (Ba1/BB) climbed 1½ points to close the day in the 82 to 82½ context, a source said.

The notes fell more than 7 points to a historic low of 80½ following Lumen’s earnings.

Level 3’s 4¼% senior notes due 2028 (Ba3/B+) gained 1 point to close in the 69½ to 69¾ context, a source said.

The notes closed at an all-time low of 68½ the previous session.

The notes remained down 10 points since Lumen reported earnings.

Lumen’s capital structure has seen heavy selling since the communications company released forward guidance that fell well short of expectations.

Fund flows

High-yield ETFs had $290 million of daily cash inflows on Monday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $128 million of outflows on Monday, the source said.

The combined funds are tracking $2.18 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index was down 18 points to close Tuesday at 52.5 with the yield 7.26%.

The index was off 9 points on Monday.

The ICE BofAML US High Yield index fell 16 bps with the year-to-date return now 3.066%.

The index inched up 9.3 bps on Monday.

The CDX High Yield 30 index shaved off 8 bps to close Tuesday at 102.54.

The index gained 36 bps on Monday.

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