Carpenter Technology prices in junkland; Kraft Heinz gains rising star status; Endo plummets

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 11 – A very quiet week in the high-yield new issue market closed out on Friday with a single deal clearing the market.

Carpenter Technology Corp., a name on the calendar, brought new paper as expected.

Meanwhile, the secondary space remained volatile on Friday with a strong open giving way to a weak close, sources said.

The market ended the day down about ½ point with credit spreads once again blowing past 400 as accounts de-risked heading into the weekend, sources said.

While the overall market was softer on Friday, Kraft Heinz Co.’s senior notes were boosted in active trading as the company reclaimed investment-grade status.

Endo International plc’s junk bonds were the worst performers of Friday’s session with the company’s capital structure down another 2 to 5 points as it continues to get hammered by opioid litigation.

Carpenter

Carpenter Technology Corp. priced a $300 million issue of eight-year senior notes (B2/BB+/BB) at par to yield 7 5/8%, inside of the 7½% to 7¾% yield talk, but at the wide end of initial guidance in the low-to-mid 7% area.

The order book was heard to be slightly oversubscribed, and building, late Thursday.

Subsequent to pricing the bonds changed hands at par 7/8, a market source said.

Carpenter Technology extended the week's face amount of issuance to $500 million, with the only other deal pricing since Monday being a $200 million add-on to the Guitar Center, Inc. 8½% senior secured notes due Jan. 15, 2026 (B3/B) that priced in a Thursday drive-by.

Upcoming

The March 14 week is set to get underway with just a single issue on the active calendar.

SPX Flow Inc. (Redwood Star Merger Sub. Inc.) is running a full roadshow with its $570 million offering of eight-year senior notes (Caa2/CCC).

Initial guidance is in the high 8% to 9% area, and the deal is on a trajectory that would have it pricing in the latter part of the week ahead.

Meantime, look for Owens & Minor Inc. to kick off a $500 million offering of unsecured notes with a maturity of eight years or less during the week ahead.

Pending market conditions, the deal, backing the acquisition of Apria Inc., could launch as early as Monday.

The Owens & Minor 4½% senior notes due March 2029 currently trade with an approximately 6% yield to worst, implying that the new unsecured notes would likely come with a yield greater than 6% but less than 7%, a sellside source said.

The company undertook syndication of a $1.2 billion term loan (Ba3/BB-/BB+) on Thursday, with commitments due on March 22.

Although investors are staring down the barrels of big Russian guns, as a parade of ever-more-dire inflation headlines marches across the screen, late in the past week the junk bond market appeared to be attempting to shake off the chill that took hold of it at the outset of Russia's invasion of the Ukraine, on Feb. 24, the sellsider said.

During the interval in question trading volumes began to pick up, and the tone has generally been constructive, the source said, adding that it's possible, given the constructive tone, that new issue activity might see a meaningful pick up.

Kraft Heinz rises

Kraft Heinz’s senior notes were on the rise as the company achieved rising star status following an S&P Global Ratings upgrade.

The food and beverage company’s 3 7/8% senior notes due 2027 were the most actively traded in the capital structure.

However, the rate-sensitive notes saw the smallest price appreciation.

The 3 7/8% notes were up about ½ point to close Friday at 101¼, according to a market source. The notes now yield 3.6%.

There was $18 million in reported volume.

Kraft Heinz’s 4 3/8% senior notes due 2046 gained 2 points to close the day at 97 with the yield now 4.5%.

There was $9 million in reported volume.

The company’s 5.2% notes due 2045 climbed 1½ points to 107 with the yield now 4 5/8%, a source said.

The 3% senior notes due 2026 were up 1 1/8 points to 98 7/8 with the yield now 3¼%.

Both issues saw about $5 million in reported volume.

The notes were on the rise after S&P boosted its issuer and unsecured ratings for the company to BBB- from BB+. (See related article in this issue)

The upgrade marks Kraft Heinz’s return to investment-grade status with Moody’s Investors Service credit rating at Baa3.

The company was downgraded to junk prior to the Covid-19 pandemic in February 2020 with ratings agencies citing poor performance and mismanagement as reasons for the downgrade.

However, S&P returned the company to investment grade due to better cost controls and balance sheet management.

Endo plummets

Endo’s junk bonds plummeted on Friday following news the beleaguered pharmaceutical company would face additional opioid litigation.

Endo’s 9½% senior notes due 2027 were the most actively traded issue in the secondary space.

The notes sank 4½ points to close the day just shy of 87, according to a market source.

There was $48 million in reported volume.

Endo’s 6 1/8% senior notes due 2029 were down 1 3/8 points to close the day at 90½, according to a market source.

There was $16 million in reported volume.

The 7½% senior notes due 2027 were down 2 points to 94½.

There was $12 million in reported volume.

The bonds were under added pressure following news litigation against the company in San Francisco for its role in the opioid epidemic would be allowed to proceed.

Endo had joined with other pharmaceutical companies to request a pause to the litigation. However, the motion was recently denied.

While selling in the name accelerated on Friday, Endo’s junk bonds have been under pressure since releasing earnings in early March.

The 9½% notes were on a 97-handle prior to reporting earnings on March 1.

Indexes

The KDP High Yield Daily index fell 37 points to close Friday at 61.4 with the yield now 5.54%.

The index was down 17 points on Thursday, gained 6 points on Wednesday and sank 35 points on Tuesday and 21 points on Monday.

The index posted a cumulative decline of 110 basis points on the week.

The CDX High Yield 30 index sank 42 basis points to close Friday at 104.03.

The index was down 37 bps on Thursday, was up 86 bps on Wednesday and 36 bps on Tuesday after sinking 82 bps on Monday.

The index posted a cumulative loss of 39 bps on the week.

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