Tronox prices; Gap, Entegris, MGM struggle; XPO, US Foods flat; Netflix, Expedia move up

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 24 – The domestic high-yield primary market quietly rounded out a blockbuster week that saw more than $12 billion price.

Tronox Inc. was the sole issuer on Friday and priced an upsized $500 million issue of five-year senior secured notes (Ba3/B+).

While the pace for new deal activity may lighten in the coming weeks, Delta Air Lines, Inc. is on deck with a $1.5 billion split-rated offering.

Fallen angel Macy’s Inc. is also rumored to soon be making an appearance with a multibillion dollar offering.

Meanwhile, new paper was in focus in the secondary space with the influx from Thursday’s session.

However, the paper was either flat or weak in the aftermarket – a combination of tight pricing, a weak day for credit, and “new issue exhaustion,” a source said.

Gap, Inc.’s three tranches of senior secured notes (Ba2/BB), Entegris Inc.’s 4 3/8% senior notes due 2028 (Ba2/BB), and MGM Resorts International’s 6¾% senior notes due 2025 were all lagging their issue prices.

XPO Logistics, Inc.’s 6¼% senior notes due 2025 (Ba3/BB-) and US Foods, Inc.’s 6¼% senior notes due 2025 (B3/BB) were flat.

However, Netflix Inc.’s dollar-denominated tranche, the first issue to price with a 3-handle since volatility sidelined the high-yield market, was trading with a slight premium.

And Expedia Group, Inc.’s two tranches of senior notes (Baa3/BBB) outperformed to close the day on a 101-handle.

Quiet Friday

A quiet Friday session in the high-yield primary closed out a hectic week that saw $12 billion of junk clear a market that was also busy with distressed high-grade names such as Expedia, as well as crossover and fallen angel deals.

Tronox priced an upsized $500 million issue of five-year senior secured notes (Ba3/B+) at par to yield 6½% on Friday.

The issue size increased from $400 million.

The yield printed in the middle of yield talk in the 6½% area, and tight to initial guidance of 6½% to 6¾%.

Timing was moved back. The offer was originally announced as a Thursday drive-by.

The new Tronox paper was strong out of the box, according to a trader who heard that allocations were poor.

Initial trades were 101¼ bid, 101¾ offered.

However, the bid faded as the afternoon progressed, the trader added, noting that the most recent spot, late Friday afternoon, was par ½ bid.

The week ahead

A syndicate banker, conceding that there may be some heaviness in the high-yield bond market, at present, said that in the week ahead the show will nevertheless go on.

Without proffering any names or dangling any details about what industry sectors might be involved, the source said that there are deals to be done.

The pace may lighten compared to some of the torrid sessions of the past week, the banker said.

When the week ahead gets underway, Delta Air Lines will be under the spotlight with a $1.5 billion split-rated offering of five-year senior secured first-lien bullet notes (Baa3/BB).

Initial talk has the deal coming to yield in the 7% area.

Official price talk is expected Monday, according to a market source.

The Atlanta-based air carrier is also in the debt capital markets with a $1.5 billion term loan.

On Friday, the commitment deadline for the loan was moved up by 24 hours, to noon Monday.

The loan is being driven by a deal-size amount of reverse inquiry, a trader said.

Delta would like to cross the finish line with the bonds and loan at about the same time, a market source said on Friday.

And although the timing is not clear, Macy's is believed to be headed into the leverage markets with as much as $5 billion of secured debt, looking to raise capital with which it will attempt to buck the massive headwinds blowing against the retail sector, sources say.

On Friday, S&P Global Ratings downgraded all its ratings for Macy’s to B+ from BB.

About work

With some positive news surfacing on the coronavirus infection curve during the past week, conversations about work – among colleagues, as well among managers and staff – took place during that time period, market sources told Prospect News on Friday.

Although it was difficult to detect patterns, it seems clear that not everyone will physically return to the places where they worked before the pandemic sent us all to shelter.

Some companies appear set to maintain large virtual operations in which many workers will continue to operate from work stations at home.

“There was some talk that returning to the office might be voluntary, at least at first,” said a New York-based bond trader who has been working from home for weeks.

Some workers, feeling “trapped” in small apartments with partners and family members, profess eagerness to return to the office, while others say that the virtual operations work well, and are safer and more convenient.

“We're still at least a month away from anything like that happening,” a syndicate banker said on Friday, adding that federal, state and local governments need to be in the lead on any massive return to work.

The investment banking community will almost certainly wait for government guidelines to surface, before engineering a return-to-work regime, the banker said.

Early signs of indigestion

The market in general was feeling somewhat heavy on Friday afternoon with several of the deals that priced either falling flat or lagging their issue prices.

“We might be needing a little timeout here,” a trader said.

When the market reopened after the Federal Reserve Bank's dramatic move into speculative-grade debt on April 9, the first few deals came cheap, the source said.

However, it did not take issuers and dealers long to begin pushing the envelope.

Amid a global pandemic, with much of the world expecting to be hurtled into an unprecedented economic contraction, Netflix completed a three-handle four-B deal on Thursday, pricing a $500 million five-year unsecured bullet (Ba3/BB-) at par to yield 3 5/8%, sources marveled.

No one on Friday was calling it cheap.

Gap struggles

While Gap’s three-tranche megadeal was heard to be in demand during bookbuilding, the notes saw a lackluster reception in the secondary space.

Gap’s 8 3/8% senior notes due 2023 were trading largely flat on Friday with the notes wrapped around par.

The 8 5/8% senior notes due 2025 closed Friday at 99½.

The 8 7/8% senior notes due 2027, the most liquid of the tranches, were marked at 99¼ bid, 99¾ offered, a source said.

While the notes from the clothing retailer were secured, they were secured with real estate – the value of which sources questioned if the company does end up in bankruptcy.

Gap priced a $500 million tranche of the 8 3/8% notes, a $750 million tranche of the 8 5/8% notes and a $1 billion tranche of the 8 7/8% notes at par in a Thursday drive-by.

Entegris below par

Entegris’ 4 3/8% senior notes due 2028 were also lagging their issue price in the aftermarket.

The 4 3/8% notes were changing hands in the 99½ to par context on Friday and closed the day at 99½, a market source said.

Entegris priced an upsized $400 million issue of the 4 3/8% notes at par in a Thursday drive-by.

MGM sells off

MGM’s 6¾% senior notes due 2025 dropped to a 98-handle in high-volume activity on Friday.

The notes were marked at 98¼ bid, 98 5/8 offered at the market close.

“They never even broke par,” a market source said.

While the 6¾% notes were quoted at par ½ in the gray market, it was the underwriter supporting the deal, the source said.

MGM priced an upsized $750 million issue of the 6¾% notes at par in a Thursday drive-by.

Active but flat

XPO Logistics’ 6¼% senior notes due 2025 and US Foods’ 6¼% senior notes due 2025 were flat in high-volume activity on Friday.

XPO’s 6¼% senior notes due 2025 closed out Friday at par bid, par 1/8 offered.

However, the deal made little sense to some sources.

“It’s unsecured and came at 6¼%,” a source said. “This one didn’t make any sense.”

With $126 million in reported volume, the notes were among the most actively traded of Friday’s session.

XPO priced an upsized $850 million issue of the 6¼% notes at par in a Thursday drive-by.

US Foods’ 6¼% senior notes due 2025 were also flat in high-volume activity.

The notes were seen at par ¼ bid in the late afternoon and closed out the day at par 1/8.

US Foods’ notes were also among the most actively traded issues in the secondary space with $111 million in reported volume.

Netflix at a premium

While the pricing was tight, Netflix’s 3 5/8% senior notes due 2025 were trading at a slight premium to their issue price.

The 3 5/8% notes were marked at par 3/8 bid, par ½ offered Friday afternoon with a yield to maturity of 3½%, a market source said.

The deal saw heavy demand with the dollar-denominated tranche playing to $6 billion in orders.

Netflix priced a $500 million tranche of the 3 5/8% notes at par as part of a dual-currency deal that also included a €470 million tranche.

Expedia trades up

Expedia Group’s two tranches of senior notes outperformed on Friday with both trading up to a 101-handle.

Expedia’s 6¼% notes due 2025 closed Friday at 101 1/8, a market source said.

The 7% senior notes due 2025 traded up to 101½.

While the notes currently have investment-grade ratings, they priced off the high-yield desk and catered to high-yield accounts with many believing a downgrade to junk was imminent.

“At this point, we’re just waiting for an email from the ratings agency,” a source said.

Expedia priced a $2 billion tranche of the 6¼% notes and a $750 million tranche of the 7% notes at par on Thursday.

$601million Thursday inflows

The dedicated high-yield bond funds had $601 million of net daily inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $481 million of inflows on the day.

Actively managed high-yield funds had $220 million of inflows on Thursday, the source added.

News of Thursday's inflows trails a Thursday afternoon report that the combined funds had $2.22 billion of net inflows for the week to the Wednesday, April 22 close, according to Lipper US Fund Flows.

That takes total inflows for the past four weeks to $18.4 billion, including the record setting $7.663 billion inflow for the week to April 15, the market source noted.

The past four weeks have come close to erasing the record $19.2 billion of net outflows seen in the preceding five weeks, the source said.

Indexes soft

Indexes closed Friday with losses with all having a cumulative loss on the week.

The KDP High Yield Daily index was down 29 points to close Friday at 62.47 with the yield now 7.44%.

The index was down 14 bps on Thursday, 19 bps on Wednesday, 90 bps on Tuesday and 24 bps on Monday.

The index posted a cumulative loss of 176 bps on the week.

The ICE BofAML US High Yield index sank 72.8 bps with the year-to-date return now negative 10.547.

The index dropped 10.4 bps on Thursday, gained 0.8 point on Wednesday, sank 113.9 bps on Tuesday and 41.8 bps on Monday.

The index posted a cumulative loss of 238.1 bps on the week.

The CDX High Yield 30 index dropped 53 bps to close Friday at 92.96. The index sank 15 bps on Thursday, gained 74 bps on Wednesday, dropped 123 bps on Tuesday and plunged 213 bps on Monday.

The index posted a cumulative loss of 404 bps on the week.

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