September issuance eyed; Nordstrom active on downgrade; CSC lower on failed acquisition

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 4 – The domestic high-yield primary market was again dormant on Friday in the lead-up to the holiday weekend.

However, many are expecting the high volume of new issuance to resume when the primary market restarts, provided the risk-on atmosphere continues.

While the secondary space was again soft on Friday, the market pared its losses headed into the close, ending the session with only nominal losses, a source said.

After reaching a new post-Covid tight of 493 bps on Wednesday, the secondary space gave up nearly all of its weekly gains on Thursday, according to a BofA Global Research report.

Trading volume continued to taper off with the past week marking the new lightest week of the year for trading volume, according to the report.

Nordstrom Inc.’s 5% senior notes due 2044 were active following a ratings downgrade.

CSC Holdings LLC (Altice) junk bonds were trading off after Altice USA’s takeover bid for another company was rejected.

September issuance eyed

The new issue market passed a quiet pre-Labor Day Friday, as equities underwent their second consecutive day of significant volatility.

That volatility did not appear to weigh heavily on the junk bond market, sources said.

If the vigorous appetite for risk that surfaced amid the coronavirus pandemic in the spring and summer of 2020 carries on into the fall, September could be a very big month, market sources say.

A risk-on September could have as much as $50 billion of new issuance, they add.

The pandemic summer months of 2020, June 1 through Aug. 31, saw a whopping $132 billion of issuance in 205 junk-rated, dollar-denominated tranches, for a monthly run rate of $43.3 billion.

That period encompassed the biggest month in the history of the market, June 2020, which had $58.2 billion in 84 tranches.

Summer 2020 dwarfs average issuance for the same interval in years 2010 through 2019, in both dollar amount and deal volume: $50 billion and 159 tranches.

The next biggest year for June 1 through Aug. 31 dollar amount of issuance was 2019, which saw $62.6 billion. The next biggest year for deal volume was 2014 with 128 tranches.

Should September hit the $50 billion mark it would be the most issuance for the month of September in the history of the market.

The biggest September on record is that of 2013, which saw $47.4 billion.

Average September issuance, years 2010 to 2019 inclusive, is $30.6 billion.

And should it occur that $50 billion of issuance materializes in September the standing yearly issuance record in the high-yield market, 2012's $325 billion, would be shattered.

In its runup to Labor Day, the pandemic year of 2020 has seen a scorching $288.6 billion of junk price in 443 tranches.

However, any September assault upon the record book hinges on risk appetite, sources say.

One metric that surfaced late in the runup to Labor Day, which might reflect that appetite, was the record $10.7 billion of weekly inflows seen in the dedicated investment-grade bond funds for the week to the Wednesday, Sept. 2 close.

By comparison, the dedicated high-yield bond funds, which had been chalking up weekly inflows in the billions, in the teeth of the summer rally, saw relatively modest inflows of $319 million in the week to Wednesday.

Do the heavy flows into investment-grade bonds versus the much more modest flows into speculative-grade bonds portend a paring of risk among investors?

“It doesn't feel like that,” a trader commented on Friday, adding that at least during Thursday's stock market rout junk really wasn't all that heavy.

“It doesn't feel like there is an exodus,” said the trader.

“It feels like there is still an appetite for risk.”

Nordstrom active

Nordstrom’s 5% senior notes due 2044 were active following the downgrade of the luxury department store chain’s unsecured debt.

The 5% notes were “all over the place,” a source said, with trades as high as 72¼ and as low as 70.

However, the real market for the notes was 70½ bid, 71½ offered, the source said.

The 5% notes were among the most active of Friday’s session with $16 million in reported volume.

The majority of trading activity was between dealers, the source said.

The notes were active after S&P Global Ratings cut its rating for Nordstrom’s unsecured notes to BB+ from BBB- with the outlook negative.

The downgrade was due to Nordstrom’s diminished competitive position, Prospect News reported.

However, S&P maintained its BBB- rating for the company’s secured debt.

The downgrade was widely anticipated with the market expecting more to follow, a source said.

In April, Nordstrom priced an investment-grade rated issue of 8¾% senior secured notes due 2025 off the high-yield desk. (Baa2/BBB-)

The high-yield execution for the secured notes was an indication that the market considered the notes to be risky assets, regardless of their credit ratings, a source said at the time.

CSC Holdings down

CSC Holdings, a subsidiary of Altice USA, saw its junk bonds trade off on Friday following its failed takeover bid for Cogeco Inc., an Ontario-based telephone and internet provider.

CSC Holdings’ 4 5/8% senior notes due 2030 dropped 1 point to close Friday on a par-handle.

While volume was lighter, the cable television provider’s 3 3/8% senior notes due 2031 dropped ¾ point to close Friday at 97½.

“This was basically due to the failed acquisition,” a source said.

Altice USA launched a $7.8 billion hostile takeover bid earlier in the week for Cogeco with the intention of retaining its U.S. assets and selling its Canadian cable TV business to Rogers Communications Inc..

The bid was rejected by Cogeco yesterday.

Altice and Rogers intend to pursue the offer, a source said.

CSC Holdings priced a $1.7 billion add-on to its 4 5/8% notes at 103.25 on Aug. 3.

The deal also included a $1 billion tranche of the 3 3/8% notes, which priced at par.

Both tranches have struggled in the aftermarket.

The 4 5/8% notes initially traded above the reoffer price before dropping down to par amid the market weakness in mid-August.

However, the 4 5/8% notes pared their losses and were on a 102-handle heading into Thursday’s session.

The 3 3/8% notes have largely traded below par since pricing. They were on a 98-handle heading into Friday’s session.

Indexes down

Indexes closed Friday with losses although they were mixed on the week.

The KDP High Yield Daily index was down 9 basis points to close Friday at 67.29.

The index was up 2 bps on Thursday, 7 bps on Wednesday and 6 bps on Tuesday after shaving off 2 bps on Monday.

The index had a cumulative gain of 4 bps on the week.

The ICE BofAML US High Yield index dropped 33 bps with the year-to-date return now 0.577%.

The index was down 15.8 bps on Thursday after gaining 19.1 bps on Wednesday, 12 bps on Tuesday and 5.8 bps on Monday.

The index posted losses of 11.9 bps on the week.

The CDX High Yield 30 index was down 8 bps to close Friday at 105.69.

The index sank 66 bps on Thursday, was up 7 bps on Wednesday, 64 bps on Tuesday and 10 bps on Monday.

The index posted a cumulative gain of 7 bps on the week.

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