More new junk than expected Friday; Scotts, Tempur Sealy lag, Endo, Entercom at a premium

By Paul A. Harris and Abigail W. Adams

Portland, Ore., March 12 – A busier-than-expected Friday in the high-yield new issue market saw four issuers price a combined five dollar-denominated junk tranches with a total face amount of $1.87 billion.

Meanwhile, it was a soft day in the secondary space with the market down slightly after Thursday’s strong session, a source said.

However, volume was light.

New paper remained in focus although with mixed performances in the secondary space.

Scotts Miracle-Gro Co.’s 4% senior notes due 2029 (B1/B+) and Tempur Sealy International, Inc.’s 4% senior notes due 2029 (B1/BB) were lagging their issue prices in the aftermarket.

Endo International plc’s 6 1/8% senior secured first-lien notes due 2029 (B3/B+) were trading with a slight premium.

However, Entercom Communications Corp.’s 6¾% senior secured second-lien notes due 2029 (B3/B-) outperformed the other deals with the notes hitting 101 in intraday activity.

Friday executions

Two issuers were expected to clear the market before the weekend, as of Thursday evening.

Instead, the market had four issuers total with five tranches, a slight surprise.

Two issuers downsized their offerings over the course of the day, while one did a modest upsize.

Executions were a mixed bag, with two tranches pricing at the wide ends of talk, two pricing in the middle of talk, and one pricing inside of yield talk but at the same time at the cheap end of price talk.

Pitney Bowes Inc. brought the session's largest overall amount of issuance.

The company priced a downsized $750 million amount (from $800 million) of guaranteed senior notes (B1/BB) in two tranches, both of which priced at par, at the wide ends of talk.

The deal included $400 million of 6 7/8% six-year notes and $350 million of 7¼% eight-year notes.

Notes in both tranches were straddling the issue prices at 99¾ bid, par ¼ offered just after Friday's close, according to a trader who added that some investors, who perhaps padded their orders somewhat, were heard to have ultimately received larger allocations than they expected.

Elsewhere, in a deal heard to be playing to both high-yield and emerging markets investors, United Arab Emirates-based Shelf Drilling Holdings Ltd. priced an upsized $310 million issue (from $300 million) of 8 7/8% senior secured first-lien notes due Nov. 15, 2024 (expected ratings B2/CCC+) at 98.082 to yield 9½%.

The yield printed 12.5 basis points inside of yield talk, but the issue price came toward the cheap end of price talk.

The deal was heard to be 1.5-times oversubscribed, according to a bond trader who spotted the new Shelf Drilling 8 7/8% notes due November 2024 trading above issue price at 99½ bid, par offered, shortly after Friday's close.

Week ahead

The week ahead gets underway in the Ides of March, to an empty active calendar.

Sources pressed for deal tips for the March 15 week, on Friday, turned out empty pockets.

However the word in the market is that potential primary market activity is shaping up beneath the radar by means of non-deal roadshows which provide prospective issuers opportunities to meet with key accounts and test the market's receptivity and price, before announcing a deal that they might otherwise end up wishing they hadn't announced.

Lagging

In the secondary market on Friday, Scotts Miracle-Gro’s 4% senior notes due 2029 and Tempur Sealy’s 4% senior notes due 2029 were lagging their issue prices – a product of tight pricing and a soft day in the market, a source said.

Scotts Miracle-Gro’s 4% senior notes spent most of Friday’s session on a 99-handle.

The notes were changing hands in the 99¼ and 99 5/8 context heading into the market close.

Scotts priced a $500 million issue of the 4% notes at par on Thursday.

Pricing came at the tight end of the 4% to 4¼% yield talk.

The deal became the latest example of an offering that was in high demand during bookbuilding but faltered in the secondary space – a growing theme in the high-yield market, sources said.

The notes played to $1.4 billion of demand across 108 accounts, according to a market source.

Tempur Sealy’s 4% senior notes due 2029 were also struggling below par in active trading.

The notes traded in a range of 99½ to par during Friday’s session, a source said.

There was more than $64 million on the tape.

Tempur Sealy priced an $800 million issue of the 4% notes at par.

The yield printed in the middle of yield talk in the 4% area.

At a premium

While new paper from Scotts and Tempur Sealy were lagging in the secondary, Endo’s 6 1/8% senior secured first-lien notes due 2029 and Intercom’s 6¾% senior secured second-lien notes due 2029 maintained premiums, despite a soft day for the secondary space.

Endo’s 6 1/8% senior notes were changing hands in the par 1/8 to par 3/8 context heading into the market close.

The notes were in focus with more than $140 million in reported volume.

Endo priced an upsized $1.295 billion, from $1 billion, issue of the 6 1/8% notes at par on Thursday.

Pricing came at the tight end of yield talk in the 6¼% area. While the notes were above par, their secondary performance did not reflect the demand seen during bookbuilding with the deal playing to more than $4.9 billion in orders, a source said.

Intercom’s 6¾% senior secured second-lien notes due 2029 were the best performing of Thursday’s deals with the notes trading as high as 101 in intraday activity.

However, they came in heading into the close and were marked at par 5/8 to par 7/8.

Entercom priced an upsized $540 million, from $500 million, issue of the 6¾% notes on Thursday.

The yield printed at the tight end of the 6¾% to 7% yield talk.

The deal was heard to be three-times oversubscribed, a trader said.

$618 million Thursday inflows

The dedicated high-yield bond funds saw $618 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 saw $903 million of inflows on the day.

However actively managed high-yield funds were negative on Thursday, sustaining $285 million of outflows on the day, the source said.

News of Thursday's daily flows follows a Thursday report that the combined funds sustained a whopping $5.33 billion amount of net outflows in the week to the Wednesday, March 9 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

It was the largest weekly outflow since the week ending July 1, 2020 (negative-$5.55 billion), and the fifth largest outflow on record, according to the market source.

Indexes down

Indexes closed Friday in the red although they were mixed on the week.

The KDP High Yield Daily index dropped 4 points with the yield now 4.14%.

The index gained 12 points on Thursday after dropping 4 points on Wednesday, 5 points on Tuesday and 7 points on Monday.

The index was down 12 points on the week.

The ICE BofAML US High Yield index shaved off 22.9 bps with the year-to-date return now 0.49%.

The index gained 34.2 bps on Thursday after dropping 2 bps on Wednesday, 8.8 bps on Tuesday and 4.5 bps on Monday.

The index took off 4 bps on the week.

The CDX High Yield 30 index dropped 13 bps to close Friday at 108.75.

The index gained 21 bps on Thursday, 47 bps on Wednesday and 16 bps on Tuesday after dropping 61 bps on Monday.

The index gained 10 bps on the week.

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