Junk floodgates open, $2.5 billion joins calendar; LifePoint under water; Strathcona jumps

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 1 – The month of August began at a purposeful pace in the junk bond new issue market on Tuesday.

The session had $2.5 billion of business announced or unambiguously telegraphed.

Meanwhile, it was a soft day in the secondary space with the market coming in from recent heights.

The cash bond market gave back about ¼ point as market players evaluated a host of macro data and earnings.

The latest JOLTS report showed the lowest amount of job openings in more than two years, although it also reflected the lowest rate of layoffs for the year with unemployment remaining near historic lows.

The release of the report coincided with the latest ISM Manufacturing report, a measure of factory activity, which again contracted.

While market optimism about a soft landing propelled levels to recent heights, some have been questioning the narrative, a source said.

In specific issues, LifePoint Health Inc.’s 9 7/8% senior secured notes due 2030 (B2/B) played to heavy demand during bookbuilding, but sank below their issue price under Tuesday’s heavy market conditions.

However, Strathcona Resources Ltd.’s 6 7/8% senior notes due 2026 (B3/BB-/B+) outperformed the market with the notes making large gains on news it was acquiring Pipestone Energy Corp.

Junk calendar

Tuesday’s session brought $2.5 billion of upcoming business.

Of that, $500 million came from Carnival Corp. on an accelerated timeline driven by big demand, source said.

Carnival’s new first-priority senior secured notes due 2029 (Ba2/BB-) priced at par to yield 7%, at the tight end of talk.

The debt refinancing deal was more than eight-times oversubscribed, playing to orders from 188 accounts, a sellside source said.

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

Much of the rest of Tuesday’s announced business is set to price on what is shaping up to be a busy Wednesday in the primary market.

Of the deals formally announced Tuesday, TriNet Group, Inc. expects to price $500 million of eight-year senior notes (Ba2/BB), initial talk 7% area, and CDK Global plans to price $755 million of six-year first-lien secured notes due June 15, 2029, initial talk low-to-mid 8% area.

Meanwhile price talk of 9¾% to 10% surfaced on the KDC/One Development Corp., Inc./KDC US Holdings, Inc. $500 million offer of five-year senior secured notes (B3/B-/B), which is set to price Wednesday. That official talk came right on top of initial guidance.

Those new offerings join Veritext, which announced a $720 million seven-year first-lien senior secured notes deal (B2/B) on Monday. That offering is in the market with initial talk in the high 8% area, and also set to price Wednesday.

LifePoint under water

In the secondary market of recent offerings, activity was centered on LifePoint’s new 9 7/8% senior secured notes due 2030 which played to strong demand during bookbuilding.

However, the notes sank below issue price under Tuesday’s heavy market conditions.

The 9 7/8% notes sank ½ point to a 99-handle in heavy volume.

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

There was $91 million in reported volume.

They went out the previous session wrapped around par.

LifePoint priced an upsized $800 million, from $600 million, issue of the 9 7/8% at par in a Monday drive-by.

Pricing came at the wide end of tightened talk for a yield of 9¾% to 9 7/8%, which was revised from initial price talk for a yield of 10% to 10¼%. Early guidance was for a yield of 10¼% to 10½%.

Strathcona jumps

Strathcona’s 6 7/8% senior notes due 2026 outshined the market on Tuesday with the notes jumping 5 points to a 93-handle following its announced acquisition of industry rival Pipestone Energy.

The 6 7/8% notes were changing hands in the 93¼ to 93¾ context heading into the market close, according to a market source.

The yield fell to about 9 3/8%.

There was $15 million in reported volume.

The notes were in focus after Strathcona announced that it would go public in Canada through its acquisition of Pipestone.

The two companies will combine to form a new company with Pipestone shareholders to receive 9.05% of the pro forma equity or 0.067967 shares per Pipestone share.

The deal will transform Strathcona into the fifth-largest oil producer in Canada.

Fund flows

The dedicated high-yield bond funds had $338 million of net daily cash inflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $260 million of inflows on the day.

Actively managed high-yield funds had $78 million of inflows on Monday, the source said.

Indexes

The KDP High Yield Daily index fell 17 basis points to close Tuesday at 50.51 with the yield now 7.41%.

The index inched up 2 bps on Monday.

The ICE BofAML US High Yield index fell 30.6 bps with the year-to-date return now 6.61%.

The CDX High Yield 30 index fell 36 bps to close Tuesday at 103.18.

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