Junk secondary rallies; Neogen jumps; Frontier spikes; BB paper well bid; Charter gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 7 – The domestic high-yield primary market remained quiet on Thursday although market players continue to eye a potential offering supporting the buyout of Tenneco Inc.

While the new issue calendar remains empty, there was an uptick of activity in the secondary space on Thursday as risk assets rallied.

The cash bond market jumped ¾ to 1 point on Thursday with ETF buying again lifting the overall space.

Neogen Corp.’s 8 5/8% senior notes due 2030 (B2/BB) became one of the best performing new issues of 2022 with the notes trading at a large premium to their issue price.

Its secondary market performance trails only Entegris Inc.’s 5.95% senior notes due 2030 (Ba2/BB/BB) and Frontier Communications Holdings, LLC’s 8¾% first-lien senior secured notes due 2030 (B3/B/BB+) with only six of the 100 deals to price in 2022 trading at premiums to their issue prices.

Frontier’s 8¾% notes spiked in active trading on Thursday as buyers returned to the market.

While Treasuries remained under pressure with the 10-year Treasury yield again breaking above 3%, BB paper was particularly strong during Thursday’s session.

There was a multibillion-dollar pension fund inflow to the BB ex-energy space on Thursday “so it was extremely well bid,” a source said.

T-Mobile USA, Inc.’s 3 3/8% senior notes due 2029 and 3½% senior notes due 2031 (Ba2/BB+) and Roblox Corp.’s 3 7/8% senior notes due 2030 (Ba2/BB) improved in active trading.

Charter subsidiary CCO Holdings LLC’s junk bonds (B1/BB-) were also on the rise in active trading.

Meanwhile, high-yield mutual and exchange-traded funds saw their first inflows since June 9 with $889 million entering the space in the week through Wednesday’s close, according to the Refinitiv Lipper US Fund Flows report.

Tenneco eyed

The dollar-denominated new issue market remained quiet on Thursday, and there were no dollar deals on the active forward calendar.

However, the market continues to watch for a new offer of notes supporting the buyout of Tenneco by affiliates of Apollo Global Management, Inc., a bond trader said.

On Thursday Tenneco announced that Brian J. Kesseler, its chief executive officer, intends to vacate that position upon completion of the merger, with his role to be assumed by Jim Voss.

Also on Thursday the company announced that closing conditions, with respect to antitrust and/or foreign direct investment laws, have been satisfied or waived, and the merger is expected to go forward.

Meanwhile, Tenneco recently undertook a change-of-control tender offer for $800 million of its 5 1/8% senior secured notes due 2029 and $500 million 7 7/8% senior notes due 2029, via merger entity Pegasus Merger Co., an affiliate of Apollo.

The early tender date is July 12.

“They're dotting the I's and crossing the T's in a manner that suggests they're headed to market with a deal,” said the trader who added that it might come as soon as a window of opportunity in the capital markets opens.

Remarkably, in the face of Thursday's news Tenneco's outstanding bonds remained largely inactive, the trader said, adding that mergers and acquisitions news away from Tenneco – most notably a possible merger between Gulfport Energy Corp. and Encino Energy LLC – has also largely failed to kindle much bond trading activity.

Neogen jumps

Neogen’s 8 5/8% senior notes issue due 2030 took its place as one of the best performing new issues of 2022 with the notes trading with a strong premium in the aftermarket.

The notes continued to rise after a strong break and were marked at 102 bid, 102¼ offered heading into Thursday’s close, according to a market source.

They shot up to 101¼ bid after the break on Wednesday.

The food safety business that issued the notes in connection with its merger with 3M’s food safety business is a solid credit and the deal played to heavy demand, sources said.

However, given the amount of paper in the secondary space trading at deep discounts, some market players balk at paying par for new issues.

In a deal that was heard to be 2.5x oversubscribed, Neogen priced a $350 million issue of the 8 5/8% senior notes at par on Wednesday.

The yield came at the tight end of yield talk in the 8¾% area.

Neogen’s paper is currently one of the best performing new issues of 2022 and trails only Entegris’ 5.95% senior notes due 2030 and Frontier’s 8¾% first-lien senior secured notes due 2030 in terms of secondary market performance.

Entegris’ 5.95% senior notes, which priced at 90.832, have been trading in the 95½ to 96 context.

Frontier spikes

Frontier’s 8¾% first-lien senior secured notes due 2030 spiked in active trading on Thursday as buyers returned to the market.

The notes jumped 2 points to return to a 104-handle. They were changing hands in the 104¼ to 104½ context throughout Thursday’s session.

The 8¾% notes have been one of the best performing deals of 2022 with the notes trading as high as 105 7/8 in early June before the market downturn.

Frontier priced a $1.2 billion issue of the 8¾% notes at par in early May.

Well bid

Thursday marked a strong session for the overall market with BB paper particularly well bid despite the continued climb of the 10-year Treasury yield.

T-Mobile’s 3 3/8% senior notes due 2029 and 3½% senior notes due 2031 continued to improve in active trading.

The 3 3/8% notes climbed another ½ point on Thursday to close the day wrapped around 90 with the yield 5.144%.

The notes have climbed 1½ points on the week.

T-Mobile’s 3½% senior notes due 2031 rose ¼ point. The notes were changing hands in the 88¼ to 88¾ context heading into the market close.

The notes have climbed 1 point over the past week.

Roblox’s 3 7/8% senior notes due 2030 also continued to improve.

The notes rose ½ point to close Thursday at 85 with the yield 6.3%. The notes have gained 2½ points over the past week.

CCO on the rise

Charter subsidiary CCO Holdings’ senior notes also continued to see buying interest.

The company’s 4¼% senior notes due 2034 rose ½ point on Thursday with the notes trading in the 80¾ to 81 context heading into the market close.

The notes have climbed 3 points on the week.

The 4½% senior notes due 2032 climbed 1 point to trade in the 84 to 84½ context heading into the market close.

The notes have climbed 3 points on the week.

Indexes

The KDP High Yield Daily index gained 34 points to close Thursday at 55.06 with the yield 7.44%.

The index was up 20 points on Wednesday and was flat on Tuesday.

The ICE BofAML US High Yield index rose 68.5 basis points with the year-to-date return now 12.876%.

The index gained 23.3 bps on Wednesday and 7 bps on Tuesday.

The CDX High Yield 30 index gained 119 bps to close Thursday at 98.92.

The index was up 23 bps on Wednesday and 50 bps on Tuesday.

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