Junk closes week on firm footing; Arconic marches higher; DISH gains after volatile week

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 28 – The high-yield primary market passed another quiet summer Friday with no issues pricing and no deals announced.

However, the market had $2.6 billion price in four tranches during the July 24 week with two deals on the forward calendar.

Meanwhile, it was a slow session in the secondary space with trading volumes petering off after a macro-filled week.

While activity in the space diminished, the market closed the week on firm footing with credit spreads at their tightest levels of the year, a source said.

With the broader market quieting, new issues were in focus with Arsenal AIC Parent LLC 8% senior secured notes due 2030 (Ba3/B+/BB+) backing the buyout of Arconic Inc. again dominating the tape.

The notes continued to shoot higher in heavy volume after a strong break the previous session lifted them to a 101-handle.

DISH Network Corp.’s senior notes closed out a volatile week on strong footing with several tranches wiping out losses from earlier in the week.

The calendar

In the four tranches that priced for $2.6 billion during the July 24 week, the Arsenal/Arconic deal, which priced Thursday, played to huge demand although pricing fell through the floor, from early talk that topped out at 9%, to the final print at 8%.

A portfolio manager spoke of having a limit order in at 8 5/8%, and was left to conclude that either the firm’s credit analyst – who thought the deal “rich” below that level – was crazy, or the market is.

The investor declined to speculate what generated the phenomenal demand, said to be in excess of $5 billion for the $700 million deal, but conceded that an ultra-lean summer calendar could be a factor.

The deal, which came at par, traded as high as 102 on Friday morning, a trader said, adding that allocations were heard to have been rough.

Meantime a debt capital markets banker said that the word in the market was that pricing in the Arsenal/Arconic bond deal was not an issue for investors, and added that it could have come inside of 8%.

The week ahead, which will see July give way to August, gets underway with a modest calendar.

KDC/One Development Corp., Inc. and KDC US Holdings, Inc. are marketing a $500 million offer of five-year senior secured notes (B3) with initial talk of 9¾% to 10%.

And Rain Carbon Inc. is shopping a $450 million offering of six-year second-lien senior secured notes (B3/B) with early talk in the low-to-mid 12% area.

No other deal tips for the July 31week were at hand on Friday.

The backdrop for issuing speculative-grade bonds is constructive, the debt capital markets banker asserted.

The week ahead could be – and should be – a comparatively busy one, the source said.

There are conversations taking place that could give way to deals “from names that people know,” the banker said.

Arconic higher

Arconic’s 8% senior secured notes due 2030 continued to shoot higher in heavy volume with the notes breaking above a 101-handle in intraday activity.

The notes rose another ½ point to trade in the 101½ to 102 context heading into the close, a source said.

There was $34 million in reported volume.

The offering was heavily oversubscribed with the demand seen during bookbuilding following the notes into the secondary space.

Arsenal AIC priced a downsized $700 million, from $900 million, issue of 8% senior notes at par on Thursday as part of Apollo and Irenic’s leveraged buyout of Arconic.

The yield came 25 basis points tighter than yield talk of 8¼% to 8½%. Early guidance was 8¾% to 9%.

Proceeds were shifted to the concurrent term loan.

The deal was heard to have played to $5 billion in demand with allocations tight.

DISH recovers

DISH’s senior notes were lifted on Friday after a volatile week that had a credit rating downgrade and the company unveil its long-speculated partnership with Amazon.

The 5 1/8% senior notes due 2029 (Caa2/B-) gained 1¼ points to trade in the 50 to 50¼ context, according to a market source.

The yield narrowed to 19 7/8%.

There was $22 million in reported volume.

DISH’s 11¾% senior secured notes due 2027 (B2/B) gained 1 point to trade in the par 5/8 to par 7/8 context into the close.

The yield was 11½%.

There was $17 million in reported volume.

DISH’s 7 3/8% senior notes due 2028 gained about ½ point to close the day at 60 with the yield about 22 5/8%.

There was $14 million in reported volume.

DISH’s capital structure had a wild week with its senior notes and stock seeing explosive gains early in Wednesday’s session after the company announced it would sell its wireless plans through Amazon.

However, the early gains quickly gave way to losses as heavy selling set in.

In addition to the unveiling of DISH’s long-speculated partnership with Amazon, Moody’s Investors Service downgraded DISH this past Wednesday due to its rising debt leverage, weakening revenue and subscriber trends and costly pivot to wireless service.

Fund flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds had $51 million of inflows on the day.

However high-yield ETFs sustained $60 million of outflows on Thursday, the source said.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds sustained $367 million of net outflows during the week to the Wednesday, July 26 close, according to fund-tracker Refinitiv Lipper.

That weekly outflow came on the heels of the previous week’s $2.2 billion inflow, the fifth-largest of 2023, to date.

Cash outflows from high yield for 2023 peaked in late March at $16 billion, according to the market source who added that since then the junk funds have seen $7 billion of inflows.

Year-to-date cash flows of the dedicated high-yield funds were negative-$9.3 billion to Thursday’s close, the market source said.

Indexes

The KDP High Yield Daily index fell 26 points to close Thursday at 50.47 with the yield 7.43%.

The index gained 5 points on Wednesday after falling 5 points on Tuesday and 2 points on Monday.

The ICE BofAML US High Yield index added 3.2 bps with the year-to-date return now 6.653%.

The index shed 2.2 bps on Wednesday and 9 bps on Tuesday after gaining 13.7 bps on Monday.

The CDX High Yield 30 index fell 25 bps to close Thursday at 103.07.

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