Junk primary clears $5.45 billion; new paper dominates secondary; Shelf Drilling tumbles

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 30 – News volume in the high-yield bond primary remained heavy on Tuesday, as four single-tranche dollar-denominated issuers priced $5.45 billion, the biggest day for new issuance in well over two years.

Elsewhere, it was a relatively flat day in the secondary space with the cash bond market either side of unchanged as market players await the Federal Open Market Committee’s Wednesday announcement.

The Fed announcement on Wednesday is not expected to yield many surprises with market players widely anticipating a continued rate pause.

However, the announcement is expected to shed light on when rate cuts will begin with a March start date a matter of debate, sources said.

The market remained new issue-centric with new and recent deals driving volume in the space.

Mr. Cooper’s new 7 1/8% senior notes due 2032 (B1/B/BB) came in from their heights after a strong break but held on to a premium in heavy volume on Tuesday.

Several other recent issues dominating the tape on Tuesday were largely unchanged in substantial volume with the deals finding their aftermarket levels.

Caesars Entertainment, Inc.’s 6½% senior secured notes due 2032 (Ba3/B+), the Caliber Collision/Wand NewCo 3 Inc. 7 5/8% senior secured notes due 2032 (B3/B), and Altice USA Inc. subsidiary CSC Holdings, LLC’s 11¾% senior guaranteed notes due 2029 (B2/B) were among the issues driving volume.

Outside of new and recent issues, Shelf Drilling Holdings Ltd.’s 9 5/8% senior secured notes due 2029 (B3/B-/B) were active with the notes tumbling alongside other oil drillers after Saudi Aramco announced it would abandon plans to boost output capacity.

Primary

Junk bond investors are digesting the early 2024 burst of supply just fine, a portfolio manager remarked, adding that companies with debt maturities anywhere in sight should presently be beating a path to the issuer-friendly environs of the junk new issue market.

Tuesday executions were sharp, with one deal pricing through talk, two coming at the tight ends, and one in the middle of downwardly revised talk.

UKG Inc. priced a $2.5 billion issue of seven-year senior secured notes (B2/B-/BB) at par to yield 6 7/8%, at the tight end of talk.

The deal was heard to be playing to $6.5 billion of demand on Tuesday morning.

Rakuten Group, Inc. priced an upsized $1.8 billion issue (from $1 billion) of 11¼% non-callable three-year senior notes (BB) at 97.83 to yield 12 1/8%, in the middle of downwardly revised talk.

Kodiak Gas Services, LLC priced a $750 million issue of five-year senior notes (B2/B+/BB) at par to yield 7¼%, inside of talk.

“We got in the deal early but got a low allocation,” the investor lamented, spotting the new Kodiaks trading at par 7/8 bid, 101¼ offered, a short while after the Tuesday close.

Also on Tuesday, Jefferson Capital Holdings, LLC priced a $400 million issue of five-year senior secured notes (Ba3/BB-) at par to yield 9½%, at the tight end of talk.

In all, Tuesday was the biggest issuance day since Nov. 10, 2021 which priced $6.75 billion.

Calendar

In the wake of Tuesday’s action there remained a hefty $6.1 billion active deal calendar, most of it set to price ahead of Friday’s close.

The stage is set for a sizable Wednesday session.

Among the deals teed up for Wednesday, there was movement, Tuesday, on the big Ineos Group Holdings SA upsized €2.1 equivalent dollar and euro bond and bank financing (from €2 billion equivalent).

The company increased the minimum sizes of the five-year senior secured notes tranches (Ba3/BB/BB+): a $600 million minimum tranche of Ineos US Finance LLC notes is talked to yield 7½% to 7¾%, inside of the 7¾% to 8% initial guidance. The minimum size increased from $500 million.

A €700 million minimum tranche of Ineos Finance plc notes is talked to yield in the 6½% area, at the tight end of the 6½% to 6¾% initial guidance. The minimum size increased from €400 million.

Ineos also upsized the concurrent euro term loan by €100 million, while leaving the dollar term loan size unchanged.

Noting that the euro minimums ballooned disproportionate to the dollar minimums, the investor said that there is a chance – just a chance – that the dollar tranches could be eliminated, with the proceeds shifted to the euros.

Demand for the Ineos loan paper from the European CLOs is massive, the portfolio manager noted.

The active dollar calendar grew on Tuesday.

WestJet Loyalty LP plans to price a $500 million offering of seven-year senior secured notes on Wednesday. Initial guidance is in the low-to-mid 8% area.

And Consolidated Energy Finance SA started a roadshow on Tuesday for a $580 million offering of seven-year senior notes (B2/BB-), with initial talk in the high-11% area.

That deal is expected to price early in the week ahead.

Mr. Cooper holds premium

Mr. Cooper’s new 7 1/8% senior notes due 2032 came in from the heights reached on the break but still held a premium to their discounted issue price in heavy volume on Tuesday.

The 7 1/8% notes were off about 1/8 point to trade in the 99¼ to 99½ context, a source said.

The notes closed the previous session in the 99 3/8 to 99 5/8 context.

Mr. Cooper priced an upsized $1 billion, from $800 million, issue of the 7 1/8% notes (B1/B/BB) at 99.251 to yield 7¼% in a Monday drive-by.

The yield printed at the tight end of yield talk in the 7 3/8% area.

At the level

New and recent issues continued to dominate the tape with the market “very new-issue focused,” a source said.

While several recent deals continued to trade in heavy volume, most had leveled off after making large gains their initial days in the secondary space.

Caesars’ 6½% senior secured notes due 2032 were wrapped around 101 in heavy volume on Tuesday.

There was $24 million on the tape during the session.

The notes have largely traded in the par ¾ to 101 context since pricing at par on Jan. 24.

Caliber Collision’s 7 5/8% senior secured notes due 2032 were slightly softer although the notes remained on a 103-handle.

The notes were wrapped around 103 3/8 in active trade, a source said.

There was $23 million in the tape.

Caliber’s 7 5/8% notes shot up to a 103-handle shortly after pricing at par on Jan. 18 with the notes largely trading in the 103 3/8 to 103 5/8 context.

CSC Holdings’ 11¾% senior guaranteed notes due 2029 continued to trade in the 101 7/8 to 102 1/8 context on Tuesday, a source said.

There was $21 million in reported volume.

The notes have come in slightly from the heights reached last week when the notes traded in the 102 1/8 to 102 3/8 context.

However, their secondary trajectory has been largely straight up since pricing at par on Jan. 18.

The strong performance of recent issues is a positive sign for the market, a source said.

Shelf Drilling tumbles

Shelf Drilling’s 9 5/8% senior secured notes due 2029 were taking a hit on news that Saudi Aramco was canceling plans to boost its output capacity.

The 9 5/8% notes dropped about 2½ points in active trade.

The notes were trading in the 96¾ to 97¼ context heading into the market close, a source said.

The yield rose to 10 3/8%.

There was $20 million in reported volume.

The notes were trading on a 99-handle heading into Tuesday’s session.

News that Saudi Aramco was abandoning plans to boost its oil output capacity sent Shelf Drilling and other oil drillers tumbling.

“People in oil services are going to get hurt by this,” a source said.

Shelf Drilling is active in the Middle East with Aramco’s plans expected to affect the company’s growth.

Fund flows

The dedicated high-yield bond funds had $364 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 $248 million of inflows on the day.

Actively managed high-yield funds had $116 million of inflows on Monday, the source said.

The combined funds are tracking $995 million of net inflows on the week that will conclude with Wednesday’s close, according to the market source.

Indexes

The KDP High Yield Daily index shed 7 basis points to close Tuesday at 50.64 with the yield now 6.83%.

The index inched up 1 bp on Monday.

The ICE BofAML US High Yield index shed 2.8 bps with the year-to-date return now 0.087%.

The index gained 14.9 bps on Monday.

The CDX High Yield 30 index was down 17 bps to close Tuesday at 105.99.

The index added 14 bps on Monday.

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