Junk bond trading volatile; Square falls on short-seller report; DISH, Citrix weaken

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 23 – The dollar-denominated new issue junk bond market remained quiet on Thursday, although some players are watching for a moderate reopening, should secondaries hold in, sources say.

Meanwhile, it was a volatile day in the secondary space with buyers lifting the market early in the session but selling taking hold as the session progressed.

ETFs were circulating offers-wanted-in-competition lists (OWICs) early in the session with OWICs outnumbering bids-wanted-in-competition lists (BWICs) by a large margin.

However, ETFs were circulating BWICs by the close, a source said.

While the cash bond market was either side of unchanged on Thursday, the CDX index traded in a wide range.

The CDX index opened up more than ½ point early in the session to trade as high as 100.107.

“Then it came crashing down,” a source said, with the index closing down ¾ point.

Markets have been volatile since the Federal Open Market Committee’s Wednesday announcement, which provided little clarity about the Fed’s path forward in light of the banking crisis.

“People still don’t know what to think,” a source said.

Topical news and large liquid issues remained the drivers of trading activity in the space with the new issue calendar drying up.

Block Inc., formerly known as Square, Inc., was the name of the day in several asset classes with the company’s capital structure under pressure following a short-seller report.

Block’s junk bonds sank 3 to 5 points after Hindenburg Research accused the fintech company of overstating user counts and catering to criminals.

DISH Network Corp.’s 11¾% senior secured notes due 2027 (Ba3/B+) continued their strong downtrend with the high-beta name falling to a 92-handle.

Citrix Systems Inc./Tibco Software Inc.’s 6½% senior secured notes due 2029 (B2/B) gave back their gains from the previous session with the notes falling more than 1 point after a strong uptrend over the course of the week.

Meanwhile, outflows continued with high-yield mutual and exchange-traded funds losing $902 million in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flows report.

Primary

It has now been 15 days since the last dollar-denominated high-yield deal was priced, a syndicate banker mused, late Thursday afternoon.

The issue in question, the Jones DesLauriers Insurance Management Inc. (Navacord Inc.) 8½% senior secured notes due March 2030 (B2/B-/B+), has been the best performing deal thus far in 2023, according to a bond trader who had them at 103 bid, 103½ offered on Thursday morning.

The $500 million issue priced at par on March 2.

As to the calendar, there are no issuer names at hand, a trader said while recounting that Altice is a name that continues to be kicked around ever since a deal was expected to be announced during the J.P. Morgan Global High Yield & Leveraged Finance Conference, which took place in the week of March 6.

Altice, which would be coming to raise cash in order to refinance Cablevision Holdings debt, will be opportunistic, a market source said, adding that the company recently extended much of its near-at-hand term loan maturities and has $1.2 billion of available revolver capacity, and so does not need to be in a rush to come.

If the markets hold in, there could be two or three deals in the week ahead, the syndicate banker said.

Should they materialize they will come from high quality issuers with double-B or high-single-B credit profiles, and will likely be sized well below $1 billion, the banker said.

Following recent tumult in the banking sector, the fallout from which continues to wash through the financial markets, dealers will initially be shy about trying to fill large order books, the source added.

Meantime the euro-denominated primary market continued to sputter to life on Thursday as Germany-based IHO Verwaltungs GmbH, the holding company for Schaeffler AG, started a brief roadshow for a €500 million offering of five-year sustainability-linked senior secured PIK toggle notes (Ba2/ BB-/BB), in the market with initial yield whisper in the mid-to-high 8% area.

Books are scheduled to close Friday, sources say.

Block falls

Block’s capital structure was under pressure on Thursday after Hindenburg Research, the short-seller responsible for the downfall of Adani Group and Nikola Corp., took aim at the company.

Block’s 2¾% senior notes due 2026 (Ba2/BB/BB) were the most actively traded issue in the secondary space.

The notes fell 3½ points to close the day wrapped around 87.

The yield was about 7½%.

There was $37 million in reported volume.

Block’s 3½% senior notes due 2031 fell 4½ points.

The notes were marked at 77¼ bid, 78¼ offered and closed the day wrapped around 78, sources said.

The yield was about 7%.

There was $26 million in reported volume.

The junk bonds sank after Hindenburg accused the company of overstating user counts, inflating its metrics and catering to criminals.

While the report triggered selling in the name, the company has strong fundamentals.

With a market cap of $37 billion, there is a large equity cushion, plenty of cash on the balance sheets and a good cash to debt ratio, sources said.

DISH’s downtrend

DISH’s 11¾% senior secured notes due 2027 continued their strong downtrend on Thursday.

The notes fell another 1 point to a 92-handle.

They were trading in the 92¼ to 92¾ context heading into the market close, a source said.

The yield was about 14%.

There was $25 million in reported volume.

The large liquid issue has been on a strong downtrend in March with the company setting a new all-time low the past three consecutive sessions.

The notes are a high-beta name that trade with the market.

However, heavy market conditions combined with negative topical news has resulted in large losses in the name, which have outpaced the broader market.

The satellite broadcaster is still reeling from its recent ransomware attack, which investors expect will result in a loss of subscribers.

DISH released its annual report to shareholders on March 17 with loss of subscribers and subscriber satisfaction highlighted as a risk factor.

Citrix lower

Citrix’s 6½% senior secured notes due 2029 gave back their gains from the previous session with the notes falling almost 1 point after a strong uptrend over the past week.

The 6½% notes fell back to an 86-handle after breaking above 87 the previous session.

The notes were changing hands in the 86 to 86½ context heading into the close with the yield about 9½%, according to a market source.

There was $23 million in reported volume.

The notes had been on a strong uptrend after closing last Friday on an 84-handle.

While down on Thursday, the notes have still gained about 1½ points on the week, according to a market source.

Indexes

The KDP High Yield Daily index gained 9 points to close Thursday at 51.14 with the yield 7.39%.

The index gained 12 points on Wednesday, 20 points on Tuesday and 3 points on Monday.

The ICE BofAML US High Yield index inched up 2.1 basis points with the year-to-date return now 2.261%.

The index rose 29 bps on Wednesday and 57.7 bps on Tuesday after falling 12.8 bps on Monday.

The CDX High Yield 30 index sank 77 bps to close Thursday at 98.81.

The index dropped 81 bps on Wednesday, jumped 152 bps on Tuesday and was unchanged on Monday.

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