Cedar Fair, Adient price; Sally Beauty on deck; Ford, AMC flounder; oil turns negative

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 20 – The domestic high-yield primary market saw an active start to the week with two drive by deals pricing and one more joining the forward calendar.

In offerings that were upsized and priced tight, Cedar Fair Entertainment Co. priced $1 billion of five-year senior secured notes (Ba2/BB-) and Adient US LLC priced $600 million in five-year first-lien notes (Ba3/B+).

Sally Beauty Holdings Inc. also joined the forward calendar with a $300 million offering of five-year senior secured second-lien notes, which are expected to price on Tuesday.

Meanwhile, it was a soft tape in the high-yield secondary space with the cash bond market, in general, down 0.5 to 0.75 points.

While the barrel price of WTI crude oil for May delivery plunged into negative territory for the first time in recorded history, the high-yield energy space was relatively unchanged, a market source said.

While high-beta, better-credit names were weak heading into the market close, the headlines did little to alter the fundamentals of the energy space.

Ford Motor Co.’s massive $8 billion three tranche offering (Ba2/BB+/BBB-) was struggling in the aftermarket with each tranche below par, despite playing to massive demand during bookbuilding and trading up in the gray market.

AMC Entertainment Holdings, Inc.’s recently priced 10½% senior notes due 2025 were also floundering with the notes well below their issue price.

Deals upsize, talk tightens

In the face of declining stock prices and continuing disaster in the oil market on Monday – with energy representing 16.5% of the high-yield index – the junk new issue market continued to crank out ultra-tight executions typically reserved for the best economic circumstances.

Drive-by deals upsized.

Yields printed tight to – or inside of – talk, with prices sometimes dropping 100 basis points below initial indications.

Cedar Fair Entertainment priced an upsized $1 billion issue of five-year senior secured notes at par to yield 5½%.

The issue size increasd from $875 million.

The yield printed at the tight end of the 5½% to 5¾% yield talk. Initial talk was in the 6½% area.

The deal was heard to have been playing to a substantial amount of reverse inquiry, a trader said.

Meanwhile, Adient Co. priced an upsized $600 million issue of five-year first lien notes at par to yield 9%.

The issue size increased from $500 million and the notes priced 12.5 basis points through yield talk in the 9¼% area. Initial talk had the deal coming to yield in the high 9% area.

The notes come with a springing maturity, and also feature a special call provision related to the Coronavirus Aid, Relief, and Economic Security (CARES) Act. (See related story in this issue.)

Meanwhile, Sally Beauty expects to price a $300 million offering of five-year senior secured second-lien notes (BB-) on Tuesday.

Sally Beauty’s unsecured notes due 2025 were trading with a 9.35% yield on Monday morning, leading one bond trader to estimate that the new secured paper could come in the high 8% area.

Crude oil in negative territory

The headlines were large and dramatic – for the first time in history West Texas Intermediate crude oil futures descended into negative territory.

The barrel price of WTI crude oil for May delivery, a contract which expires on Tuesday, traded as low as negative $40 a barrel before settling at negative $13.10, a decrease of $31.37, or 171.70%.

The cratering contract was interesting from a technical perspective, but did little to “move the needle” in the high-yield energy space, a market source said.

The negative number meant that sellers were paying buyers to take oil, which made sense given the delivery and storage costs involved in filling the contract, a source said.

With the contract for June delivery still above $20 a barrel, the negative crude oil futures were more of a fascinating technicality than a new trend in energy, the source said.

With several energy names in the high-yield space already priced for bankruptcy, crude oil’s historic move on Monday did little to move them one way or another.

However, the better-credit, high-beta names in the energy space were weaker, a source said.

While those names were down, on average, about one point, the junk bonds of recent fallen angels Occidental Petroleum Corp. and Continental Resources Inc. were down on average 4 to 5 points, sources said.

Occidental Petroleum’s 3% senior notes due 2027 dropped 4¾ points to 61¼. The 2.7% senior notes due 2022 dropped 4½ points to 78½.

The 4.4% senior notes due 2046 were down 4½ points to 54½.

Continental Resources’ 4 3/8% senior notes due 2028 were down about 5 points to 64½, according to a market source.

The 5% senior notes due 2022 were down 4½ points to 83.

However, the fundamentals of the companies were unchanged by the move in crude oil, a source said.

Ford below par

Ford’s recently priced three tranches of senior notes were struggling in high-volume activity on Monday with each tranche closing the day below par.

Ford’s 8½% senior notes due 2023 traded down to 98½ on Monday, a market source said.

The 9% senior notes due 2025 traded down to a 97-handle.

The 9 5/8% senior notes due 2030 traded down to 98 5/8.

All tranches were heard to be in heavy demand in bookbuilding with the 8½% notes hitting 101 and the 9 5/8% notes going as high as 102 in the gray market, a source said.

However, after the initial “hot pop” the notes came in, the source said.

With the deal heard to be heavily oversubscribed, accounts were most likely concerned about their allocations.

However, allocations, for some accounts, turned out to be better than anticipated, which may be one reason the notes traded up in the gray but were weakening on Monday, a source said.

Ford priced a massive $8 billion three-tranche offering in a Friday drive-by.

The deal included a $3.5 billion tranche of the 8½% notes, a $3.5 billion tranche of the 9% notes, and a $1 billion tranche of the 9 5/8% notes – all of which priced at par.

The 8½% notes priced tight to talk in the 8¾% area and tighter than initial talk in the 9½% area.

The 9% notes priced tight to talk in the 9¼% area and tighter than initial talk in the 10% area.

The 9 5/8% notes priced tighter than talk in the 10% area and tighter than initial talk in the 11% area.

The deal was a “true junk deal” that catered to mostly high-yield accounts – an indication the market is not expecting the recent fallen angel to be coming out of junkbondland, a source said.

While it is unclear whether the Federal Reserve acted as a buyer of the 8½% notes due 2023, the tranche met the criteria for participation in the Primary Market Corporate Credit Facility with Ford an eligible issuer and the tranche size carrying a maturity of less than four years.

AMC flounders

AMC’s 10½% senior notes due 2025 were floundering in secondary market activity with the bonds trading well below their already discounted issue price.

The 10½% notes were trading at 96 on Monday with an offer as low as 94½ seen shortly before the market close, a source said.

While the notes were first-lien, AMC is “the worst player in a bad industry,” a market source said.

The secondary market performance of the notes, despite their double-digit coupon, is an indication the market does not expect the company to survive.

The deal was considered a lifeline, a source said.

AMC priced a $500 million issue of the 10½% notes at 98 to yield 11.031% in a Friday drive-by.

$1.03 billion Friday inflows

The dedicated high-yield bond funds had $1.03 billion of daily cash inflows on Friday, the most recent session for which data was available, according to a market source.

High-yield ETFs saw a hefty $810 million of inflows on the day.

Actively managed high-yield funds were also strongly positive on Friday, with $220 million of inflows on the day, the source said.

Retail cash continues to pour into the high-yield bond asset class.

The combined funds are tracking $2.11 billion of inflows for the week that will conclude with Wednesday's close, according to the market source.

The inflow is on top of a record $7.663 billion of cash inflows to the combined funds for the week to the April 15 close, market sources say.

Indexes weak

Indexes launched the week on soft footing.

The KDP High Yield Daily index dropped 24 basis points to close Monday at 63.99 with the yield now 7.29%.

The index had a cumulative gain of 49 bps on the week last week.

The ICE BofAML US High Yield index dropped 41.8 bps with year-to-date returns now negative 8.88%.

The index had a cumulative gain of 230.1 bps on the week last week.

The CDX High Yield 30 index dropped 213 bps to close Monday at 94.13.

The index posted a cumulative loss of 333 bps on the week last week.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.