Spirit Airlines prices, flies high in secondary; Tenet trades up; Macy’s gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 2 – The domestic high-yield primary market cleared the forward calendar on Wednesday with the one deal that was in the market.

In a heavily oversubscribed offering, Spirit Airlines, Inc. priced an upsized $850 million of 8% five-year first-lien senior secured notes (Ba3//BB+) at a discount.

The new paper dominated activity in the secondary space with the notes skyrocketing in high-volume activity.

It was another firm day for the secondary with recent issues jumpstarting trading activity.

Tenet Healthcare Corp.’s newly priced 6 1/8% senior notes due 2028 (Caa1/CCC+/B) were also active with the notes gaining strength after a lackluster break.

Macy’s, Inc.’s senior notes were among the major gainers of Wednesday’s session with the notes up 2 to 4 points after the department store chain reported better-than-expected earnings.

Spirit in focus

Spirit Airlines priced Wednesday's sole junk deal, an upsized $850 million (from $600 million) issue of 8% five-year first-lien senior secured notes (Ba3//BB+) at 98.976 to yield 8¼%.

The yield came at the tight end of the 8¼% to 8½% yield talk, which also specified an original issue discount. Initial guidance was in the 8¾% area.

The deal, backed by assets related to the Florida-based air carrier's customer loyalty program, was heard to be eight-times to 10-times oversubscribed, and playing to reverse inquiry amounting to 50% of the original size of the offering, sources said.

The collateral package kindled interest among asset-backed accounts, which were heard to be active in Wednesday's deal, a trader said.

The demand for the notes followed them into the secondary space where they took off in high-volume activity.

The 8% notes traded as high as 104 and were changing hands in the 103½ to 103 7/8 context heading into the market close, a source said.

Another trader saw them going out at 103¼ bid, 103¾ offered.

With the notes pricing early in the day, there was more than $155 million of the bonds on the tape during Wednesday’s session.

Loyalty programs

The template for the Spirit Airlines deal came in late June when United Airlines Holdings, Inc. brought the Mileage Plus Holdings, LLC/Mileage Plus Intellectual Property Assets, Ltd. 6½% senior secured notes due June 2027, backed by United's Mileage Plus customer loyalty program.

The Mileage Plus 6½% notes were trading at 104½ mid, on Wednesday, the trader said, noting that the bonds were rated investment grade, Baa3//BBB-.

At Wednesday's price they were yielding roughly 5.3%.

Investors have taken a view that these bonds are over-collateralized, and cheap, the trader said.

The same dynamic appeared to be at work with the Spirit deal, albeit on a much smaller scale, the trader said.

Late Wednesday trading prices would seem to bear out that color.

And Wednesday's Spirit deal is not expected to be the final chapter in the saga of the customer loyalty-backed junk bond.

Delta Air Lines Inc. is expected make a similar approach, post-Labor Day, with a first-lien bond deal backed by its SkyMiles frequent flyer program, sources say.

Tenet in focus

Tenet’s 6 1/8 senior notes due 2028 were in focus on Wednesday with the notes gaining strength in high-volume activity.

After a relatively lackluster break that saw the notes wrapped around par, the 6 1/8% notes were marked at par ¼ bid, par ½ offered early Wednesday.

They continued to gain as the session progressed and traded as high as 101 before closing the day at par 7/8, sources said.

The bonds were second only to Spirit Airlines in trading volume with $106 million on the tape.

The health care services company is one of the few CCC credits to tap the market recently.

As the high-yield primary market saw the highest volume of issuance of any August in its history, triple-C credits were notably absent and only accounted for $1.08 of the $48.4 billion that priced.

While the pricing of the 6 1/8% notes was tight given the company’s credit rating, it was indicative of the market, a source said.

Tenet priced a $2.5 billion issue of the 6 1/8% notes at par in a Tuesday drive-by.

Pricing came in the middle of the 6% to 6¼% yield talk. Initial talk was in the 6¼% area.

The refinancing deal sparked activity in Tenet’s outstanding issues.

Tenet’s 8 1/8% senior notes due 2022, which will be taken out with the proceeds from the offering, continued to trade on a 111-handle after jumping 3 points in active trading on Tuesday.

The notes were trading around their takeout value.

Tenet’s 6¾% senior notes due 2023 were also active, although the notes closed the day unchanged at 107¾.

Macy’s gains

Macy’s capital structure was on the rise on Wednesday after the department store chain reported better-than-expected earnings.

Its junk bonds were up between 2 and 4 points with investors optimistic about the retailer’s recovery, despite continued losses, sources said.

Macy’s 8 3/8% senior notes due 2025 were the most active issue in the capital structure.

The 8 3/8% notes were up 2¼ points to close the session at 107½, according to a market source. The bonds had more than $16 million in reported volume.

The 3 5/8% notes due 2024 were up 4 points to 79½.

The 3 7/8% notes due 2022 were up 3 points to 96 and the 2 7/8% notes were up 3¾ point to 86, sources said.

Revenue was $3.56 billion versus expectations for revenue of $3.48 billion.

Macy’s reported an adjusted net loss of $251 million versus expectations for an adjusted net loss of $538 million, according to a market source.

Indexes gain

Indexes continued their upward momentum on Wednesday.

The KDP High Yield Daily index was up 7 basis points to close the day at 67.36 with the yield now 5.22%.

The index was up 6 bps on Tuesday after shaving off 2 bps on Monday.

The ICE BofAML US High Yield index shot past the 1% benchmark on Wednesday after only recently moving into positive territory.

The index was up 19.1 bps with the year-to-date return now 1.065%. The index was up 12 bps on Tuesday after gaining 5.8 bps on Monday.

The CDX High Yield 30 index was up 7 bps to close Wednesday at 106.43. The index jumped 64 bps on Tuesday after gaining 10 bps on Monday.

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