Morning Commentary: Avient trades to premium; Community Health bonds plummet on earnings

By Paul A. Harris

Portland, Ore., July 28 – The high-yield market opened Thursday unchanged to as much as 1/8 of a point better, according to a bond trader in the New York area.

However, junk faded a bit into mid-morning, the trader noted.

The new Avient Corp. 7 1/8% senior notes due August 2030 (Ba3/BB-) were wrapped around 102 on Thursday morning after going out the door on Wednesday at 102 bid, 102½ offered in very active trading, the source said.

The $725 million issue priced Wednesday at par on an accelerated timeline and tighter than talk, playing to an order book heard to be five-times oversubscribed.

Avient, the only issue to print week to date, is the biggest deal to clear the market since Entegris Inc. priced $895 million of Entegris Escrow Corp. 5.95% senior notes due June 2030 on June 16, a deal that came at a steep 90.832 discount to par to yield 7½%.

Amid the summer travails of the high-yield primary market, the Avient execution – which saw pricing tighten to 7 1/8% from pre-market conversations in the high-7% area, initial price talk in the 7½% area, and official talk of 7¼% to 7½% – illustrates that there is still liquidity in the market for quality names with good credit ratings, sources say.

Away from new issues, bonds of Community Health Systems Inc. sustained steep price drops following an earnings miss disclosed in a Thursday report that the Franklin, Tenn.-based hospital health care provider made to its investors.

In that report Community Health also slashed full-year guidance.

The report's impact on its bonds was dire, according to a trader, who noted that the company's first-lien notes initially dropped 10 points, while its second-lien notes initially fell 20 points.

In fact, they fell to levels where they were clearly oversold, the trader remarked, adding that they subsequently began attracting bids.

The CHS/Community Health Systems, Inc. 4¾% senior secured notes due February 2031 were 76½ bid, 77½ offered at mid-morning on Thursday, down 7 points but well off the lows, the trader said.

In the wake of Wednesday's marquee Avient deal, the new issue market remained quiet on Thursday morning.

There is one deal stationed on the active forward calendar.

Patagonia Holdco LLC was scheduled to wrap up a roadshow for its $500 million offering of seven-year senior secured first-lien notes (B1/B+) earlier in the week.

However, there have been no updates since the beginning of the week on the offer, which comes in support of the buyout of Lumen Technologies' Latin American operations by Stonepeak, sources say.

Due to the summer issuance drought, high-yield accounts initially took notice of the Patagonia deal, sources say.

However, the perception that seems to have evolved in the interim is that the Patagonia deal appears to be more of an emerging markets play, they add.

Fund flows

The dedicated high-yield bond funds saw mixed flows on Wednesday, according to a market source.

High-yield ETFs saw $364 million of inflows on the day.

It was the sixth consecutive session in which the junk ETFs posted strong positive flows.

Meanwhile actively managed high-yield funds saw $260 million of outflows on Wednesday, the source said.

As the market awaits a report on the weekly cash flows of the various asset classes from fund tracker Refinitiv Lipper, expected later on Thursday, the combined funds are tracking a whopping $4.3 billion of net inflows for the week to Wednesday’s close.

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