New junk paper prices wide; Sunnova, ModivCare, Scotts at a premium; WW is weighed down

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 11 – The high-yield new issue market continued to crank on Wednesday as four single-tranche issuers raised a combined $3.91 billion.

Royal Caribbean Cruises Ltd. returned to the market on Wednesday and priced a $1 billion issue of five-year unsecured bullet notes (B2/B).

W.R. Grace Holdings LLC also priced an upsized $1.16 billion issue of eight-year senior notes (B3/CCC+/B+).

Meanwhile, the secondary space was largely unchanged on Wednesday although there remained some new-issue fatigue as the primary market continued to pound out new paper.

However, in contrast to Monday’s deals, several of the deals to price on Tuesday were putting in respectable performances in the aftermarket.

Sunnova Energy Corp.’s 5 7/8% senior notes due 2026 (B1/B-), ModivCare Inc.’s 5% senior notes due 2029 (B2/B+) and Scotts Miracle-Gro Co.’s 4 3/8% senior notes due 2032 (Ba3/B+) were all trading at a decent premium to their issue price

However, while the deals were sizable, trading activity in the names was relatively light with late August illiquidity setting in.

“The guys that are in these deals want to be in them,” a source said. “There’s a lot less flipping.”

Meanwhile, outside of recent deals, WW International, Inc.’s 4½% senior secured notes due 2029 (Ba3/BB-) were under pressure with the notes down 3 points following the company’s earnings report.

Wednesday’s primary

In the nearly $4 billion new issue market on Wednesday, three of the four deals came as drive-bys.

One was upsized.

Executions were a mixed bag, at best, with one deal pricing at the tight end of talk, one pricing in the middle of talk, and two pricing at the wide ends.

Royal Caribbean Cruises returned to the market on Wednesday seeking to replenish capital it used in order term out 40% of the $2.32 billion of 11½% notes it placed in mid-May 2020, when the cruise line undertook draconian debt capital markets measures to stay afloat in the teeth of the pandemic.

On Wednesday Royal Caribbean priced a $1 billion issue of five-year unsecured bullet notes at par to yield 5½%, in the middle of talk.

Demand was heard to be around $1.2 billion, a trader said, adding that at 5½% the deal was playing to mixed reviews.

Still, the cruise line has its enthusiasts, the trader said, noting that the company's stock (NYSE: RCL) is up 12½% in the past week, but off its highs.

You certainly can't blame them for wanting to get rid of 11½% debt, the trader allowed.

And the company maintains that if another Covid shutdown should put it back in dry dock it now has sufficient liquidity to see it through to late 2023, the source added.

Elsewhere, W.R. Grace Holdings priced an upsized $1.6 billion issue (from $955 million) of 5 5/8% eight-year senior notes at par, at the tight end of talk.

The notes traded up to 101 5/8 bid and appeared to be moving higher in very active trading, a trader said.

Another source marked the notes at 101¾ bid, 102¼ offered.

On deck for Thursday is Eldorado Gold Corp. which talked its $500 million offering of eight-year senior notes (B3/BB-/B+) to yield 5¾% to 6%, wide to early guidance in the mid-to-high 5% area.

The deal still has wood to chop, according to one trader who said that it was heard to be playing to $325 million of orders on Wednesday morning.

At a premium

While volume in the names were relatively light, several recent deals were putting in decent performances in the aftermarket.

Sunnova’s 5 7/8% senior notes due 2026 were about 2 points above their discounted issue price.

The notes were marked at par ½ bid, 101 offered heading into the market close.

“That was a good one,” a source said.

There was $60 million in reported volume.

Sunnova priced an upsized $400 million, from $350 million, issue of the 5 7/8% notes at 98.75 to yield 6.164%.

The yield came tighter than the 6¼% to 6½% yield talk.

ModivCare was marked at 101¼ bid, 101¾ offered throughout Wednesday’s session.

ModivCare priced an upsized $500 million, from $400 million, issue of the 5% notes at par to yield 4.998% on Tuesday.

The yield printed at the tight end of the 5% to 5¼% yield talk.

Scotts Miracle-Gro’s 4 3/8% senior notes due 2032 were also putting in a solid performance in the aftermarket, although they remained on a par-handle.

The 4 3/8% notes were marked at par ½ bid, par ¾ offered, a source said.

There was about $40 million in reported volume.

Scotts Miracle-Gro priced a $400 million issue of the 4 3/8% notes at par on Tuesday.

The yield printed at the wide end of the 4¼% to 4 3/8% yield talk.

WW under pressure

WW International’s (formerly known as Weight Watchers) 4½% senior secured notes due 2029 were under pressure on Wednesday following the company’s earnings report.

The 4½% notes were down 3 points. They were marked at 98¼ bid, 98¾ offered heading into the close, a source said.

There was about $30 million in reported volume.

WW International’s stock also nosedived about 25% after a large earnings miss.

The company reported second-quarter revenue of $311.4 million versus expectations for revenue of $338 million.

$129 million Tuesday inflows

The dedicated high-yield bond funds had $129 million of net daily inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $95 million of inflows on the day.

Actively managed high yield funds saw $34 million of inflows on Tuesday, the source said.

Indexes

The KDP High Yield Daily index fell 12 basis points to close Wednesday at 69.86 with the yield now 3.8%. The index shaved off 0.05 bps on Tuesday and 4 bps on Monday.

The ICE BofAML US High Yield index was down 11.9 bps with the year-to-date return now 3.642%.

The index shaved off 3.1 bps on Tuesday and 9.2 bps on Monday.

The CDX High Yield 30 index gained 17 bps to close Wednesday at 109.21.

The index fell 21 bps on Tuesday and 19 bps on Monday.

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