Primary prices more than $3.5 billion; Delta flies high; Energizer flat; L Brands trades up

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 17 – Four issuers conducted drive-bys in the junk bond primary market on Thursday and one deal cleared the calendar for over $3.5 billion of new business.

Meanwhile, the secondary space was soft on Thursday as equities sold off on the heels of a Federal Reserve announcement.

The deluge of new paper was also beginning to take its toll on the secondary space with some recent deals falling flat.

Energizer Holdings, Inc.’s 4 3/8% senior notes due 2029 (B2/B+) and Restaurant Brands International, Inc.’s 4% senior notes due 2030 (B2/B+) were largely wrapped around their issue prices in active trading on Thursday.

However, L Brands, Inc.’s 6 5/8% senior notes due 2030 (B2/B+) were trading at a large premium.

Delta Air Lines Inc. and SkyMiles IP Ltd.’s two tranches of senior notes (Baa1//BBB) soared in high-volume activity in the aftermarket.

Meanwhile, funds pared their losses from the previous week with high-yield mutual and exchange-traded funds seeing inflows of $526 million through Wednesday’s close, according to the Refinitiv Lipper US Fund Flows report.

Funds had outflows of $769 million the previous week, which was only the second outflow in the past 10 weeks, sources said.

Another $3.83 billion

Five issuers each priced a single tranche of dollar-denominated junk on Thursday, raising a combined $3.83 billion, the seventh consecutive post-Labor Day session to put up issuance in excess of $3 billion.

All but one of Thursday's deals were drive-bys.

Three of the five upsized.

Sloughing off weakness in the equity markets, executions tended to be sharp.

First Quantum Minerals Ltd., for example, priced an upsized $1.5 billion (from $1 billion) issue of 6 7/8% senior notes (CCC+/B-) inside of talk.

However, Thursday's executions were not uniformly excellent.

Alliance Data Systems Corp. priced a $500 million non-rated issue of 7% notes 25 basis points beyond the wide end talk.

Perhaps Thursday's most conspicuous attention-getter was Pactiv Evergreen (Reynolds), one trader said.

Pactiv upsized its bond deal to $1 billion from $750 million, on Thursday, after downsizing it to $750 million from $1 billion earlier in the week, the earlier adjustment reflecting a shift of proceeds to the bank loan.

The reason for bumping the deal back up to $1 billion: the Lake Forest, Illinois-based supplier of food and beverage packaging's concurrent IPO was a definite miss, the trader said, noting that the company targeted a share price range of $18 to $21, but ended up pricing those shares at $14.

Thursday's action left in place a $3 billion active forward calendar (see related stories in this issue).

Flat

While the majority of recent deals have performed well in the aftermarket, Energizer’s 4 3/8% senior notes due 2029 and Restaurant Brands’ 4% senior notes due 2030 fell flat in active trading on Thursday.

Energizer’s 4 3/8% senior notes traded as low as 99½ but were largely wrapped around par heading into the market close, a source said.

The bonds had more than $107 million in reported volume.

Energizer priced an $800 million issue of the 4 3/8% notes at par on Wednesday.

Pricing came at the tight end of yield talk in the 4½% area.

The deal was modestly oversubscribed with $1.2 billion in the books.

Restaurant Brands also dropped below par in intraday activity, hitting a low of 99¾.

However, the notes stood poised to close Thursday at par 1/8, a source said.

The bonds had more than $47 million in reported volume heading into the market close.

The deal was not attractive given the tight pricing.

“You don’t get paid much to drop to second-lien in their stack,” a source said.

Restaurant Brands priced an upsized $1.4 billion, from $1 billion, issue of the 4% notes at par on Wednesday.

The yield printed at the tight end of talk in the 4 1/8% area.

L Brands gains

L Brands’ 6 5/8% senior notes due 2030 were putting in a strong performance in the aftermarket.

The notes were immediately bid at 101 after breaking for trade on Wednesday and continued to gain during Thursday’s session.

They were marked at 101½ bid, 101¾ offered heading into the market close.

While the deal was unsecured, the coupon was decent given the market, one source said.

The bond was decent. However, the company will need to get its Victoria’s Secret brand in order over the next few quarters, another source said.

L Brands’ efforts to separate itself from its failing Victoria’s Secret brand has been an ongoing saga.

Delta soars

While the bonds were investment grade, “the whole market was watching” Delta’s two-tranche megadeal backed by its SkyMiles program, a source said.

Following strong breaks, both tranches continued to gain on Thursday.

Delta’s 4½% senior notes due 2025 were marked at 102¼ bid, 102½ offered heading into the market close.

The notes saw more than $200 million in reported volume during the session.

Delta’s 4¾% senior notes due 2028 rose to a 103-handle on Thursday and stood poised to close the day at 103¼ bid, 103½ offered.

The 4¾% notes hit a 102-handle shortly after breaking for trade.

With the company’s liquidity good, Delta is the “safer” airline play, a source said.

With the notes rated in the high BBB, they also have the potential to be upgraded to A and tighten upwards of 300 bps if operations return to normal, the source said.

Delta priced the $6 billion megadeal on Wednesday.

It included a $2.5 billion tranche of the 4½% notes and a $3.5 billion tranche of the 4¾% notes, both of which priced at par.

Indexes mixed

Indexes were mixed on Thursday after posting consecutive gains throughout the week.

The KDP High Yield Daily index shaved off 2 bps to close Thursday at 67.06.

The index was up 8 bps on Wednesday, 5 bps on Tuesday and 2 bps on Monday.

The ICE BofAML US High Yield index dropped 12.4 bps with the year-to-date return now 0.533%.

The index gained 16.2 bps on Wednesday, 9.7 bps on Tuesday and 4.7 bps on Monday.

The CDX High Yield 30 index dropped 8 bps to close Thursday at 106.73.

The index gained 9 bps on Wednesday, 41 bps on Tuesday and 25 bps on Monday.

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