Newmark prices; Hilton starts roadshow; EnerSys holds premium; Medical Properties crumbles

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 5 – No purely junk-rated deals priced on Friday, although some high-yield market participants watched Newmark Group, Inc.’s upsized, split-rated $600 million issue (from $500 million) of 7½% five-year senior bullet notes (BB+/BBB-) that priced at par in a drive-by.

The deal bore some earmarks of a high-yield execution. For example, early guidance came in the form of a 7¾% to 7 7/8% yield range, as opposed to spreads, which are more typical of investment-grade executions.

However, the notes are not expected to trade on the high-yield desk, sources said on Friday.

The sole Friday news nugget from the straight speculative-grade primary market was a deal announcement from Hilton Grand Vacations Inc., which plans to kick off a $900 million offering of Hilton Grand Vacations Borrower Escrow LLC eight-year senior secured notes (Ba2/BB+/BB+) on a Monday investor call.

The new year began meekly enough in the primary market, with the Jan. 1 week seeing just $750 million of issuance in two dollar-denominated, junk-rated tranches.

However, issuance is expected to increase with estimates for the week ahead from $3 billion to $10 billion and some expecting $20 billion to $40 billion of issuance in January.

Meanwhile, it was a topsy turvy day in the secondary space following the release of the U.S. non-farm payrolls report, which came in hotter than expected.

The still-strong labor market continued to throw cold water on rate cut expectations.

But while the market seemed poised for more selling, it firmed to close the day largely unchanged.

The high-yield market opened 2024 with a soft tone with year-to-date returns falling below negative 1% as markets pulled back from their late-December exuberance.

The pullback was not unexpected after the tremendous late-year rally pushed the market to its peak in the final days of December.

And while the high-yield primary market was off to a slow start compared to high-grade issuance, the deals to price played to strong demand and jumped in aftermarket activity.

EnerSys’ new 6 5/8% senior notes due 2032 (Ba3/BB+) came in slightly from the heights reached on the break.

However, they continued to trade with a strong premium to their issue price.

Outside of new issues, topical news continued to spark large price movements in the market.

Medical Properties Trust Inc.’s senior notes (Ba2/BB-) sank 2 to 5 points after the REIT gave an update on efforts to collect unpaid rent from its largest tenant.

Hilton on deck

Hilton Grand Vacations announced plans to kick off a $900 million offering of Hilton Grand Vacations Borrower Escrow eight-year senior secured notes (Ba2/BB+/BB+) on a Monday investor call.

Initial guidance has the notes coming to yield in the 7% area.

The acquisition financing deal is slated to run a roadshow through Thursday and price late in the week ahead.

Although Friday announcements of deals to commence marketing in the week ahead are not unheard of, in the past some dealers have expressed misgivings about announcing a deal on Friday, only to have it weather the vagaries of the weekend’s news cycles, financial and otherwise.

However, Hilton Grand telegraphed the bond deal when the syndication process for the new $900 million term loan B got underway in the middle of the past week, a debt capital markets banker (not in the Hilton deal) recounted on Friday.

Also, the dealer might be expecting a burst of Monday new issue announcements, an enticement to make a bid, ahead of time, for the market’s attention should things get busy, the banker said.

Whether or not that burst of deal announcements will materialize is an open question, the banker confided.

Issuance eyed

The new year began meekly enough in the primary market, with the Jan. 1 week seeing just $750 million of issuance in two dollar-denominated, junk-rated tranches.

That slow start likely didn’t take the market by surprise, as late 2023 forecasts had the 2024 primary market getting underway, in earnest, in the week of Jan. 8.

Issuance estimates for the week ahead range from $3 billion to $10 billion, said the banker, who thinks $5 billion sounds realistic.

Estimates for total January issuance are running an astonishingly wide range of $20 billion to $40 billion, although a portfolio manager, hearing the higher number, made reference to the old maxim that hope springs eternal.

Also the euro-denominated primary market got underway during the past week, sort of.

German auto components supplier Schaeffler AG (Baa3/BB+/BB+) is marketing a benchmark euro-denominated two-part deal featuring long two-year notes and a long five-year notes.

As with the above-mentioned Newmark Group deal, it is not expected to be straight junk.

However, a stateside investor asserted that the notes in question are being issued by a solid company and professed interest in the longer-dated tranche which, in this investor’s view, could yield in the low-5% area.

EnerSys holds gains

While EnerSys’ new 6 5/8% senior notes due 2032 came in from the heights reached on the break, the notes maintained the majority of their gains on Friday.

The 6 5/8% notes were off about ¼ point in light volume.

They were trading in the par ¾ to 101¼ context, according to a market source.

The notes hit as high as 101 3/8 and closed the previous session on a 101-handle.

EnerSys priced a $300 million issue of the 6 5/8% notes at par on Thursday.

Demand for the paper was heard to be in excess of $600 million.

Medical Properties crumbles

Medical Properties’ capital structure took a hit on Friday with its senior notes falling 2 to 5 points after the REIT gave an update on efforts to collect rent from its largest tenant.

Medical Properties’ 5% senior notes due 2027 sank 5 points to close the day at 74¾, according to a market source.

The yield jumped to 13 7/8%.

The notes were the most actively traded in the secondary space with $48 million in reported volume.

Medical Properties’ 5¼% senior notes due 2026 sank 3 points to close the day at 85 with the yield about 12¼%.

There was $33 million in reported volume.

The 3½% senior notes due 2031 also fell 3 points to close the day at 59½.

The yield was about 12%.

There was $18 million in reported volume.

The notes crashed after the company gave an update about its largest tenant, Steward Health Care System.

Steward’s total unpaid rent was $50 million as of Dec. 31, Medical Properties said in a press release.

As Steward pursues strategic operations to address its liquidity crises, Medical Properties agreed to fund a $60 million bridge loan and has hired advisers to help recover unpaid rent.

Medical Properties expects to write off $225 million in rent receivables in the fourth quarter as a result of the situation.

Fund flows

High-yield ETFs saw $788 million of daily cash inflows on Thursday, reversing a four-day run of substantial outflows, according to market sources.

Actively managed high-yield funds sustained $62 million of outflows on the day.

News of Thursday’s daily cash flows followed a Thursday afternoon report that the combined funds sustained $438 million of net outflows during the holiday-abbreviated week to Wednesday’s close, according to sources who were referring to a report from fund-tracker Refinitiv Lipper.

That was the first weekly outflow in nine weeks, during which the combined high-yield funds saw $15.2 billion of net inflows, according to a market source.

Indexes

The KDP High Yield Daily index added 2 basis points to close Friday at 50.37.

The index fell 16 bps on Thursday and 16 bps on Wednesday.

The ICE BofAML US High Yield index was off 2.3 bps with the year-to-date return now negative 1.108%.

The index was down 13.5 bps on Thursday, 44 bps on Wednesday and 51.5 bps on Tuesday.

The CDX High Yield 30 index added 16 bps to close Friday at 105.16.

The index was off 2 bps on Thursday and fell 49 bps on Wednesday.

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