MGM China, Watco price; Wynn Macau on deck; Delta sells off; Level 3 lags; GrubHub gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 11 – The domestic high-yield primary market continued to churn out new issues on Thursday despite a dramatic deterioration in market conditions.

MGM China Holdings Ltd. and Watco Cos., LLC and its wholly owned subsidiary, Watco Finance Corp., each priced a $500 million issue during Thursday’s session.

One deal remains on the forward calendar. Wynn Macau Ltd. is expected to price a $750 million offering before the week draws to a close.

Meanwhile, it was a brutal day in the secondary space with the sell-off in equities bleeding into credit. The cash bond market was down more than 2 points, a source said.

Several of the sectors that rallied on optimism over an economic recovery took the brunt of the sell-off with names in the travel and gaming sectors down several points.

While the market was down, volume was relatively light with many on the sidelines waiting to gauge the future direction of the market.

Delta Air Lines Inc.’s new 7 3/8% senior notes due 2026 (Baa3/BB/BB+) dropped several points below their issue price in high-volume activity in the secondary space.

CenturyLink Inc. subsidiary Level 3 Financing Inc.’s 4¼% senior notes due 2028 were also lagging although volume for the large issue was light.

However, Acadia Healthcare Co., Inc.’s new 5½% senior notes due 2028 (Caa1/B-) held on to their slight premium in active trading.

Recent issues from the gaming and cruise industries were down several points with International Game Technology plc’s 5¼% senior notes due 2029 (Ba3/BB) and Royal Caribbean Cruises Ltd.’s 9 1/8% senior notes due 2023 closing Thursday below par.

While the overall market was down on Thursday, Grubhub Inc.’s 5½% senior notes due 2027 jumped in active trading on acquisition news.

Big book for MGM China

The new issue market continued to bustle on Thursday as issuers appeared to walk away with decent executions against a backdrop of full-force selling in the stock market with the Dow Jones industrial average falling 6½%.

Sellers were also at the wheel in the high-yield market, a trader said, noting that junk bond prices fell about a point across the board.

Nevertheless, Macao-based MGM China Holdings priced a $500 million issue of five-year senior notes (Ba3/BB-) at par to yield 5¼%.

Pricing came 25 basis points below the tight end of guidance in the 5 5/8% area. Initial talk was in the high 5% area.

The deal – led by global coordinator BofA Securities Inc., and featuring a raft of Chinese banks – was heard to be playing to $4.3 billion of orders.

That news should provide encouragement to Wynn Macau Ltd., an issuer in the market with a $750 million offering of 5.5-year senior notes (B1/BB-) expected to price on Friday.

Price talk is in the 5½% area, in line with initial guidance in the mid 5% area.

Also on Thursday

Elsewhere on Thursday, Watco Cos. priced a $500 million issue of seven-year senior notes (Caa1/B-) at par to yield 6½% in a drive-by.

The yield printed in the middle of yield talk in the 6½% area, which was also the initial price talk.

The notes traded to par 5/8 bid in the secondary market, a trader said.

Varsity Brands priced an upsized $150 million issue of Hercules Achievement, Inc. and Varsity Brands Holding Co., Inc. Libor plus 800 basis points floating-rate senior secured notes due Dec. 22, 2024 (CCC+) at 97, with a 9.833% yield to maturity.

The issue size increased from $100 million.

The spread to Libor came inside of the 825 to 850 bps spread talk. The OID came rich to the 96 price talk.

Both the trade- and settlement dates are June 22, 2020, an informed source specified, adding that the bonds will not be available to trade before that time.

The European primary

In Europe, Switzerland-based packaging group SIG Combibloc Group AG priced €1 billion of split-rated notes (Ba2/BBB-) in two bullet tranches on Thursday.

High-yield accounts were active in the trade, sources said.

The deal included an upsized €450 million tranche of three-year notes which priced at par to yield 1 7/8%. The tranche size increased from €400 million. The yield printed at the tight end of the 1 7/8% to 2% yield talk.

The upsizing of the three-year tranche was accomplished by shifting proceeds to it from the concurrent five-year tranche, a downsized €550 million of five-year notes which priced at par to yield 2 1/8%. The tranche decreased from €600 million. The yield printed at the tight end of the 2 1/8% to 2¼% yield talk.

The overall deal played to €2.9 billion of demand, which was skewed to the long-maturity tranche, a market source said.

Delta Air Lines sinks

Delta’s newly priced 7 3/8% senior notes due 2026 sold off in high-volume activity on Thursday.

The notes were changing hands in the 97½ to 98½ context throughout the session, a market source said.

With more than $135 million in reported volume, the notes were one of the most actively traded issues during Thursday’s session.

While the notes were strong after breaking on Wednesday, trading as high as 101¼, they quickly faded and closed Wednesday wrapped around par.

The notes were priced “too aggressively” for unsecured paper, a source said.

The tight pricing combined with market conditions on Thursday drove the notes down to their current level, a source said.

Delta priced a $1.25 billion issue of the 7 3/8% notes at 99.986 to yield 7 3/8% in a Wednesday drive-by.

Pricing came at the tight end of yield talk in the 7½% area. Initial talk was in the 8% area.

The deal priced a little more than one month after Delta tapped the market with a $3.5 billion issue of five-year senior secured first-lien notes, which priced at par to yield 7%.

The fact that Delta was able to price unsecured notes with only a six-month longer duration and a slightly higher yield was an indication of the richness in the market heading into Thursday’s session.

Level 3 below par

Level 3’s 4¼% senior notes due 2028 were lagging their issue price on Thursday, although trading activity in the large issue was light.

The 4¼% notes were changing hands on a 99-handle heading into the market close.

However, there was only $33 million on the tape.

“Guys that just bought it don’t want a loss, so they’re just selling bits and pieces and not really doing much of anything,” a source said.

Level 3 priced an upsized $1.2 billion issue of the 4¼% notes at par on Wednesday.

The issue size increased from $1 billion.

The yield printed in the middle of yield talk in the 4¼% area and at the wide end of the 4% to 4¼% initial talk.

Acadia holds

Acadia Healthcare’s 5½% senior notes due 2028 were holding onto their slight premium in the aftermarket, despite a brutal day for the market.

The 5½% notes stood poised to close Thursday at par ½ with more than $35 million in reported volume, according to a market source.

Acadia priced a $450 million issue of eight-year senior notes at par to yield 5½%.

The yield printed at the tight end of yield talk in the 5 5/8% area. Initial talk was in the low 6% area.

Below par

Recent issues from the gaming and travel leisure sectors were among the hardest hit in Thursday’s sell-off.

New paper from International Game Technology and Royal Caribbean Cruises gave back all of their gains and closed Thursday below par.

International Game’s 5¼% senior notes due 2029 dropped more than 2 points to 98 on Thursday.

The notes have largely been wrapped around their issue price since the slot machine maker priced the $750 million issue at par on Monday.

Royal Caribbean’s 9 1/8% senior notes due 2023 lost their large premium and closed Thursday down almost 3 points at 99 7/8, according to a market source.

The 9 1/8% notes were trading on a 104-handle as recently as Monday.

Royal Caribbean priced a $1 billon issue of the 9 1/8% notes at par on June 4.

Grubhub gains

Grubhub’s 5½% senior notes due 2027 were among the major gainers of Thursday’s session following news the company would be acquired by Just Eat Takeaway.com.

The notes jumped 2¾ points to 102 5/8 in active trading. There was more than $50 million in reported volume heading into the market close.

The notes were trading around their call price, a source said.

Amsterdam-based Just Eat Takeaway.com will acquire Grubhub in an all-stock deal, the companies confirmed on Wednesday.

The deal is expected to close in 2021, subject to regulatory approval.

News of the merger was followed by headlines that minority shareholder and fellow junk-bond issuer Yum! Brands filed a lawsuit against Grubhub for breach of contract.

The lawsuit alleges Grubhub improperly terminated a contract with Yum! in early June that gave it favorable pricing and service for its Taco Bell and KFC restaurants.

Indexes down

Indexes tanked on Thursday, which was a brutal day for the secondary space.

The KDP High Yield Daily index fell 88 basis points to close Thursday at 65.86 with the yield now 6.28%.

The index was down 21 bps on Wednesday and 17 bps on Tuesday after a 32 bps gain on Monday.

The ICE BofAML US High Yield index dropped 143.1 bps with the year-to-date return now negative 4.318%. The index was down 24.3 bps on Wednesday and 34.6 bps on Tuesday.

The CDX High Yield 30 index plummeted 231 bps to close Thursday at 99.83. The index gained 50 bps on Wednesday.

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