Energizer, LSB price in HY primary; Macy’s strong on weak day; BellRing hard to find

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 3 – For the first time in over three weeks two issuers priced deals in the high-yield primary market on Thursday.

Energizer Holdings, Inc. and LSB Industries, Inc. each announced deals in the morning and both left the day with more than the asked amounts.

Meanwhile, it was another weak day in the secondary space as investors digested Federal Reserve Chair Jerome H. Powell’s congressional testimony and the latest developments in the Ukraine.

Selling pressure drove the market down about 3/8 point on Thursday after another day of wild swings.

While the market was soft on Thursday, volatility was decreasing with the swings between high and low narrowing.

The consolidation in the CDX index on Thursday was an indication that the market was preparing for a larger move, a source said.

While sources braced for a move to the downside, the secondary space has taken the weakness in the market in stride.

The market has not yet seen panicked or forced selling, a source said.

And the new deals to recently clear the primary market were putting in strong performances.

Macy's Retail Holdings LLC’s two tranches of senior notes (Ba2/BB/BBB-) were trading at a strong premium to their issue price.

While the notes weakened on Thursday after a strong break, they closed well off the low of the day.

BellRing Distribution, LLC’s 7% senior notes due 2030 (B3/B) also held onto their premium despite the selling pressure in the market.

The relatively cheap pricing of recent issues was supporting their secondary market performance, a source said.

Outflows continued to contribute to the selling pressure in the market although the volume of funds leaving the space was diminishing.

High-yield mutual and exchange-traded funds had outflows of $482 million for the week ended Wednesday, according to the Refinitiv Lipper US Fund Flows report.

It was the second consecutive week outflows came in below $1 billion.

Funds saw $966 million leave the space in the week ending Feb. 23; $3.55 billion leave the space in the week closing Feb. 16; $1.962 billion exiting the space in the week closing Feb. 9; and $4.043 billion exit in the week closing Feb. 3.

Energizer, LSB

Both of the deals that priced in the Thursday junk bond primary market went well, sources say.

Energizer Holdings, Inc. priced an upsized $300 million (from $250 million) issue of 6½% senior notes due Dec. 31, 2027 (B2/B) at par to yield 6.502% in a drive-by.

The yield printed near the tight end of yield talk in the 6 5/8% area.

The deal was heard to be playing to around $400 million of demand at noon ET on Thursday, according to a portfolio manager who reported receiving an allocation that amounted to half the order size.

The new Energizer 6½% notes due December 2027 were par ¼ bid, par ¾ offered, heading into the Thursday close, the manager said.

Also coming with a Thursday drive-by, LSB Industries, Inc. priced an upsized $200 million fungible add-on to its 6¼% senior secured notes due Oct. 15, 2028 (B2/B) at par.

The issue size increased from $175 million.

The issue price came at the rich end of both official price talk and initial guidance of 99.5 to par.

Thursday's solid executions are probably not harbingers of a meaningful reactivation of the new issue market, the portfolio manager said.

There are M&A deals that will eventually come, but they do not have to come right away, and will likely await a saner season, the investor said.

As to refinancing deals, although some remain to be done, over the past couple of years the wall of maturities has generally been pushed out, the managers added.

Prior to Thursday, the last time that two issuers priced deals on the same day was Feb. 8, when News Corp. priced $500 million of 5 1/8% senior notes due February 2032, and Virtusa Corp. (Austin HoldCo Inc.) priced a $50 million tap of its 7 1/8% senior notes due December 2028.

Macy’s strong

New paper from Macy’s was in focus on Thursday with the notes continuing to put in a strong performance in the secondary space.

The 5 7/8% notes due 2030 and 6 1/8% notes due 2032 were largely moving at the same levels.

The notes were slightly weaker after a strong break that saw them close the previous session in the 102 to 102¼ context.

However, they stood poised to close well off the lows of the day.

The notes were marked at 101 bid, 101¼ offered early in the session. However, they were changing hands in the 101½ to 102 context heading into the market close, a source said.

Macy’s priced a $425 million tranche of the 5 7/8% notes and a $425 million tranche of the 6 1/8% notes at par on Wednesday.

The 5 7/8% notes priced tighter than the 6% to 6¼% yield talk; the 6 1/8% notes priced tighter than the 6¼% to 6½% yield talk.

While the notes priced tighter than talk, they were cheap compared to the BB index which was yielding 4¾%, a source said.

BellRing ‘hard to find’

BellRing’s 7% senior notes due 2030 maintained their premium despite the selling pressure in the market.

The notes continued to trade in the 102 to 102¼ context during Thursday’s session.

The notes were hard to find with few sellers in the market, a source said.

The notes carried a high coupon that came cheap to the B index, which currently yields 6 1/8%, a source said.

BellRing priced a restructured $840 million issue of the 7% notes at par on Tuesday after withdrawing the offering last week due to market volatility.

Outflows

The dedicated high-yield bond funds sustained $469 million of net daily outflows on Wednesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $429 million of outflows on the day.

Actively managed high-yield funds sustained $40 million of outflows on Wednesday, the source said.

In spite of ongoing, and often heavy outflows of cash from retail investors, indications are that there remains money to be put to work in high-yield bonds, sources say.

Coupon payments and calls are replacing some of that retail cash represented in the daily and weekly outflows reported by Refinitiv Lipper, a trader said.

Also, institutional investors have cash, and tend to have ongoing requirements for fixed-income securities with higher yields, the portfolio manager said.

And with respect to mitigating big outflows, it doesn't hurt that the calendar has been very light, the investor said.

Indexes

The KDP High Yield Daily index fell 5 points to close Thursday at 62.76 with the yield now 5.07%.

The index was down 3 points on Wednesday after gaining 7 points on Tuesday and 18 points on Monday.

The CDX High Yield 30 index fell 28 basis points to close Thursday at 105.1. The index gained 49 bps on Wednesday after sinking 67 bps on Tuesday and 29 bps on Monday.

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