Market awaits United Rentals; Nine Energy, JBS trade up; Uber gains; Goodyear drops

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 19 – The high-yield primary market was again quiet on Friday with no new deals entering the space and the active forward calendar empty.

Market players were eyeing United Rentals, Inc.’s anticipated $1.1 billion offering of senior notes (Ba3) in a deal that is expected to launch before the end of October.

Meanwhile, the secondary space was largely flat on Friday as equities saw another choppy day.

However, the deals that priced during Thursday’s session were strong in secondary market activity, which sources attributed to the dearth of new deal activity.

For the first time in history, the leveraged loan market has exceeded the size of the high-yield market with new issue activity being pulled away from high yield, a market source said.

Nine Energy Service, Inc.’s 8¾% senior notes due 2023 (B3/B) were active with the notes trading more than 2 points above their issue price.

JBS SA’s new 7% senior notes due Jan. 15, 2026 were also more than 2 points above their issue price with the emerging market deal eyed by some high-yield accounts.

Uber Technologies Inc.’s two-tranche privately placed offering improved although trading of the new notes remained light.

Goodyear Tire & Rubber Co.’s 5 1/8% senior notes due 2023 were down about ½ point in decent volume after competitor Michelin cut its forward guidance due to decreasing sales.

Muted new issue market

There was no primary market activity taking place in front of the camera on Friday and very little going on behind the scenes, sources said.

The active forward calendar is empty and the new deal pipeline is by no means vast, syndicate bankers say.

“The market hit new tights a couple of weeks ago,” a syndicate banker recounted on Friday.

“At that point, before the volatility hit, we had a decent pipeline forming. Now some companies are holding back,” the source said.

The week ahead should see some new issue activity but volume will remain low, the source said.

The syndicate source pointed to the strong performance of Uber Technologies’ private placement of $500 million of 7½% notes due 2023 and $1.5 billion of 8% notes due 2026 in secondary market activity.

Those Uber bonds have become Rule 144A securities and are now trading higher as investors are desperate to put cash to work in the absence of a new issue calendar, the banker said.

In addition to volatility forestalling the regeneration of a junk calendar, there are other forces at work, the official said.

The present size of the high-yield market is estimated at $1.26 trillion, according to a market source citing data from the Bloomberg Barclays US Corporate High Yield Bond index.

That should assure a fairly steady parade of refinancing deals.

However, thanks to robust market conditions in the middle years of the present decade, the 2021 and 2022 maturity walls are not very high, the banker said.

And companies with intermediate maturities, 2023 and beyond, are presently sitting on them.

Also, the vast expansion of the leveraged loan market is pulling new money issuance into the bank loan market, away from high yield, the banker said.

For the first time in history, the size of the leverage loan market, now estimated at $1.27 trillion, has overtaken the size of the high-yield market, according to the source who again cited data in the Bloomberg Barclays US Corporate High Yield Bond index.

In part, the migration of proceeds to loans from bonds can be attributed to the ability of issuers to place more highly leveraged loan paper with bank loan investors.

Senior secured debt multiples are now around five times whereas not long ago the threshold was around four times, the banker said.

“That’s a recent development.”

Awaiting United Rentals

Market conditions notwithstanding, one sizable acquisition deal ought to be near at hand, market sources said.

United Rentals is expected to bring $1.1 billion of senior notes (Ba3) in a deal that is anticipated to launch before the end of the October.

The Stamford, Conn.-based equipment rental company is seeking cash to fund its acquisition of heavy equipment rental firm BlueLine Rental from Platinum Equity.

The transaction is expected to close in the fourth quarter.

Debt financing for the BlueLine deal also includes a $1 billion term loan which allocated in early October.

As the loan cleared, junk market watchers awaited the subsequent launch of the bond deal but it never materialized.

There may have been a blackout issue, as the company reported earnings on Oct. 17.

Although United Rentals earnings per share handily beat analysts’ estimates, the stock has been getting hammered post earnings.

United Rentals share price is down over 30% in the past month.

That is more or less in line with the entire heavy equipment rental sector, which has taken a beating, a market source said, adding that slowness in the heavy equipment rental business seldom bodes well for the economy at large.

Nine Energy active

Nine Energy’s new 8¾% senior notes due 2023 saw large gains in the secondary space with the notes trading more than 2 points above their issue price.

The 8¾% notes were seen at 101¾ bid, 102½ offered and were changing hands around 102 1/8, sources said.

The notes were among the most actively traded issues in the secondary space with more than $33 million of the bonds on the tape by mid-afternoon.

The notes carry a decent coupon and were among the few issues to price over the past week, a market source said, explaining their strong performance.

In a deal that saw accelerated timing, Nine Energy priced a $400 million issue of the 8¾% notes at par on Thursday.

The yield printed in the middle of yield talk that was set in the 8¾% area and inside initial guidance announced in the 9% area.

JBS trades up

JBS’ new 7% notes due Jan. 15, 2026 were also strong in secondary market activity.

The emerging market deal from the Sao Paulo, Brazil-based meat processing company piqued the interest of some high yield accounts, sources said.

The notes were seen at 101 1/8 bid, 101 5/8 offered on Friday.

JBS priced $500 million of the 7% notes at 99.319 to yield 7 1/8% on Thursday.

The yield printed tight to initial price talk that was set in the low to mid 7% area.

Uber improves

Uber’s two-tranches of senior notes were slightly improved on Friday, although trading of the notes remained light, a market source said.

The 7½% senior notes due 2023 were seen at 101½ bid, 102 offered on Friday with trades up to 101¾, sources said.

While improved, the notes continued to see light trading volume with $6 million on the tape by mid-afternoon.

The notes were at 101 1/8 bid, 101 5/8 offered on Thursday and closed the day at 101½.

The 8% notes due 2026 saw more significant gains, although with lighter trading volume.

The 8% notes were seen at 102 bid, 102½ offered on Friday with trades around 102 3/8, sources said. However, only $2 million of the bonds were on the tape by the late afternoon.

The notes were at 101½ bid, 102 offered on Thursday and closed the day around 101 7/8.

The notes were tightly allocated and have seen muted trading activity since freeing to trade as Rule 144A securities on Thursday.

Uber privately placed an upsized $2 billion two-tranche offering of senior notes on Wednesday.

The deal included a $500 million tranche of the 7½% notes and an upsized $1.5 billion tranche of the 8% notes, both of which priced at par.

The overall size of the placement was increased from $1.5 billion.

The private placement execution was undertaken in order to limit the circulation of the San Francisco-based ride sharing company’s private financial information, sources say.

Goodyear drops

Goodyear’s 5 1/8% senior notes due 2023 lost some footing on Friday after a competitor warned of decreasing tire sales in foreign markets.

The 5 1/8% notes dropped about ½ point to trade at 98¼, a market source said. More than $18 million bonds were on the tape by the mid-afternoon.

The notes were dropping after Michelin revised its forward guidance due to decreased sales in Europe and China, a market source said.

Thursday outflows

High-yield ETFs remain in the clutches of volatility heading into the weekend, a trader said on Friday.

The junk ETFs sustained $924 million of outflows on Thursday.

Corresponding with that big number, traders reported seeing hefty bids-wanted-in-competition (BWIC) lists on Thursday.

Of the $1.57 billion of BWICs seen during Thursday's selloff, $1.08 billion came from the junk ETFs, a trader said.

Actively managed high yield funds sustained $70 million of outflows on the day, Thursday, the trader said.

News of Thursday’s outflows comes on the heels of a report that the combined funds saw $447 million of net inflows on the week to Wednesday’s close, according to Lipper US Fund Flows.

The inflow – which came on the heels of the previous week’s $4.9 billion outflow, the fourth largest outflow on record – was an ETF story, the trader said.

In the week to last Wednesday’s close, high-yield ETFs saw $1.5 billion of inflows, while actively managed high yield funds sustained $1 billion of outflows.

Indexes close with losses

Three benchmarks for the high-yield market closed out the week with losses.

The KDP High Yield Daily index slid another 2 basis points to close Friday at 69.84 with the yield flat at 6.04%.

The index was down 8 bps on Thursday and 1 bps on Wednesday after remaining flat at 69.95 on Monday and Tuesday.

While flat, the yield gained 2 bps to rise to 6.01% on Tuesday.

The index was down 9 bps on the week with the yield gaining 5 bps.

The ICE BofAML US High Yield index slid 8.5 bps on Friday with the year-to-date return now 1.498%.

The index dropped 20.3 bps on Thursday and 5.7 bps on Wednesday after a gain of 17.6 bps on Tuesday and 9.1 bps on Monday.

The index was down 7.8 bps on the week.

The CDX High Yield 30 index fell 6 bps to close Friday at 105.71.

The index was down 48 bps on Thursday and 13 bps on Wednesday after a 46 bps gain on Tuesday. The index dropped 29 bps on Monday.

The index was down 50 bps on the week.

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