Howard Hughes, Harvest Midstream, DSLD price; new deals trade up; index turns positive

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 5 – Tropical Storm Isaias, which swamped portions of New Jersey, New York, and Connecticut beginning Tuesday – with market participants homebound by the pandemic facing widespread power outages – significantly slowed the high-yield new issue market on Wednesday, but failed to close it.

Three deals priced, including a drive-by.

All came at the tight ends of talk.

Howard Hughes Corp. priced a $750 million issue, Harvest Midstream I LP priced a $600 million issue and STL Holding Co. LLC, doing business as DSLD Homes, priced a $225 million issue.

Meanwhile, it was another risk-on day in the secondary space with the influx of new paper continuing to trade up despite tight pricing that had many deals clear the primary market with a 3-handle, a source said.

Element Solutions Inc.’s 3 7/8% senior notes due 2028, Emergent BioSolutions Inc.’s 3 7/8% senior notes due 2028 (Ba3/BB-) and Penske Automotive Group, Inc.’s 3½% senior notes due 2025 (Ba3/B+) were all trading well above their issue prices in the secondary space.

Xerox Holdings Corp.’s two tranches of senior notes (Ba1/BB) were also changing hands at large premiums in high-volume activity.

There continued to be an influx of cash into the high-yield market with buying pressure driving the secondary space higher, a source said.

The ICE BofAML US High Yield index year-to-date returns turned positive for the first time since the end of February.

Wednesday’s session

Howard Hughes priced a $750 million issue of 5 3/8% eight-year senior notes (Ba3/BB-/BB) in a drive-by.

The 5 3/8% notes saw a strong break and were marked at 101¼ bid, 101¾ offered late Wednesday.

And at the conclusions of roadshows, Harvest Midstream priced a $600 million issue of 7½% eight-year senior notes (B1/BB-/BB-) and STL Holding Co. LLC, doing business as DSLD Homes, priced a $225 million issue of 7½% 5.5-year senior notes (B3/B).

Harvest Midstream’s 7½% notes skyrocketed out of the gate and were marked at 102 ¾ bid, 103 offered heading into the market close.

The storm notwithstanding, the primary market has come tearing out of the late July earnings blackout.

The blackout, which took place during the last two weeks of July, sidelined a significant number of potential issuers that needed to post fresh earnings numbers prior to selling bonds.

In that interval, encompassing the 10 market sessions between July 20 and July 31, the daily run rate was $1.3 billion, with $12.9 billion pricing during those 10 sessions.

Since coming out of the blackout the market put up $10.2 billion for the first three August sessions, alone – in spite of Isaias – for a post-blackout daily run rate of $3.4 billion.

By comparison, the busiest week in the record-setting month of June 2020 – the biggest month in the history of the market at $58.2 billion – was the week beginning June 15, which saw $23.4 billion for a daily run rate of $4.7 billion.

3-handle

Several deals that priced with a 3-handle the previous session were changing hands with large premiums in active trading on Wednesday.

Element Solutions’ 3 7/8% senior notes due 2028 were marked at 102½ bid, 103 3/8 offered on Wednesday.

In a deal that doubled in size, Element Solutions priced an $800 million issue of the 3 7/8% notes at par in a Tuesday drive-by.

The yield printed at the tight end of yield talk in the 4% area.

The deal from the specialty chemicals maker was initially announced as $400 million.

The heavily oversubscribed offering came on the heels of a better-than-expected earnings report.

Emergent BioSolutions’ 3 7/8% senior notes due 2028 were also changing hands with a large premium.

The 3 7/8% notes were marked at 101½ bid, 102 offered in the late afternoon.

The notes were active with more than $61 million of the bonds on the tape.

Emergent BioSolutions priced an upsized $450 million issue of the 3 7/8% notes at par on Tuesday.

Pricing came at the tight end of talk in the 4% area and well inside of the initial guidance of 4½% to 4¾%.

The initial size of the deal was $400 million.

The offering from the life sciences company was heard to be playing to $4.5 billion in orders.

While the notes did not reach the same heights as its 3-handle counterparts, Penske Automotive’s 3½% senior notes due 2025 were still trading with a healthy premium.

The 3½% notes were marked at par ¾ bid, 101¼ offered, a source said.

They were changing hands just shy of 101 heading into the market close.

There was more than $33 million of the bonds on the tape by the late afternoon.

Penske priced a $550 million issue of the 3½% notes at par on Tuesday.

Pricing came at the tight end of yield talk in the 3 5/8% area.

Xerox’s refi

Xerox Holdings’ two tranches of senior notes were trading with healthy premiums in the secondary space.

Xerox’s 5% senior notes due 2025 and 5½% senior notes due 2028 were both trading around the same level of 101¾ bid, 102¼ offered, a source said.

The notes saw heavy volume with more than $90 million on the tape for the five-year tranche and $60 million on the tape for the eight-year tranche.

Xerox priced a $550 million tranche of the 5% notes and a $550 million tranche of the 5½% notes at par on Tuesday.

The five-year tranche was upsized from $400 million and priced at the tight end of the 5% to 5¼% yield talk.

The eight-year tranche was also upsized from $400 million and priced at the tight end of 5½% to 5¾% yield talk.

Proceeds will be used to refinance its soon-to-mature 3½% notes due Aug. 20 and the company’s 2¾% notes due Sept. 1.

The 2¾% senior notes have $375 million and the 3½% senior notes have $362 million outstanding, according to Trace data.

$420 million Tuesday inflows

The dedicated high-yield bond funds had $420 million of daily net inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $235 million of inflows on the day.

Actively managed high-yield funds had $185 million of inflows on Tuesday, the source said.

With Wednesday's daily fund flows numbers remaining to go into the tally the combined funds are tracking $4.63 billion of inflows for the week to Wednesday's close, according to the market source.

Indexes gain

The KDP High Yield Daily index rose 12 basis points to close Wednesday at 67.16 with the yield now 5.55%.

The index gained 1 bp on Tuesday and 7 bps on Monday.

The ICE BofAML US High Yield index turned positive for the first time since the end of February.

The index gained 28.8 bps with the year-to-date return now 0.298%.

The index was up 0.3 bps on Tuesday and 21.58 bps on Monday.

The CDX High Yield 30 index jumped 165 bps to close Wednesday at 104.6. The index was up 13 bps on Tuesday after shaving off 2 bps on Monday.

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