Three junk issuers in primary; Callon weakens; L Brands gains; Diamond Sports stressed

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 22 – Three issuers, each bringing a single dollar-denominated tranche of junk, raised a combined total of $2.5 billion on Tuesday.

Meanwhile, the secondary space was slightly firmer on Tuesday as Federal Reserve chair Jerome H. Powell again assuaged investors’ concern about inflation in testimony before Congress.

New paper continued to dominate the tape with Callon Petroleum Co.’s 8% senior notes due 2028 (Caa2/CCC+) one of the most actively traded issues in the secondary space.

However, the notes were coming in slightly on Tuesday as crude oil futures retreated from their recent heights.

While new paper remained the focus of secondary market activity, there was good volume and notable price movements in some outstanding issues.

L Brands, Inc.’s senior notes were making large gains in active trading as the company moves closer to its goal of spinning off the Victoria’s Secret brand.

Diamond Sports Group LLC’s senior notes were under pressure in active trading following reports that parent company Sinclair Broadcasting Group Inc.’s talks with creditors about restructuring the debt had stalled.

Primary

Of the $2.5 billion to price on Tuesday two of the three issuers came with drive-by deals.

Executions were a mixed bag, with one tranche pricing at the tight end of talk, one pricing in the middle of talk, and one at the wide end.

Ford Motor Credit Co. LLC drove through with a $1 billion issue of registered 3 5/8% 10-year senior notes (Ba2/BB+/BB+) which priced at par, on top of talk.

The deal, which came in an execution that saw participation from both the high-yield and investment-grade syndicate desks, was playing to around $2.1 billion of demand at 10:45 a.m. ET on Tuesday, according to a trader who spotted the new bonds trading par ¼ bid, par ½ offered, heading into the close.

VMED O2 UK Financing I plc priced an $850 million tranche of 4¾% 10-year secured green notes at par, at the wide end of talk.

The bonds were higher in the secondary market ahead of Tuesday's close, but were not actively trading, the trader said.

The upsized £1.29 billion equivalent deal (from £1.13 billion equivalent) also included a £675 million 4½% tranche priced at par, also at the wide end of talk.

Callon weakens

Callon’s 8% senior notes due 2028 were slightly weaker in active trading on Tuesday.

The notes were down about 1/8 point. They were changing hands in the par ¼ to par ½ context heading into the market close.

There was about $72 million of the bonds on the tape, according to a market source.

The notes were marked at par 3/8 bid, par ¾ offered after breaking for trade on Monday.

The oil and natural gas exploration and production company priced $650 million of the 8% notes at par in a Monday drive-by.

Pricing came at the tight end of talk for a yield of 8% to 8¼%.

Several energy names were slightly weaker on Tuesday as crude oil futures retreated from their recent heights.

WTI crude oil futures settled at $73.06, a decrease of $0.60 or 0.81%.

L Brands gains

L Brands’ senior notes were on the rise on Tuesday as the company nears its long-held goal of spinning off the struggling Victoria’s Secret brand.

L Brands’ 6 7/8% senior notes due 2035 gained more than 3 points. They were changing hands at 125.125 heading into the market close with more than $18 million in reported volume.

The 7.6% senior notes due 2037 rose 2½ points to 124 with more than $11 million in reported volume.

While volume in the name was lighter, the 6¾% notes due 2036 were up more than 2 points to 123½.

The spinoff is a long-held reorganization plan so the company can focus on the more profitable Bath & Body Works, a market source said.

The company filed an 8-K filing with the Securities and Exchange Commission on Monday related to the spinoff of Victoria’s Secret into a separate publicly traded company.

The target for the completion of the spinoff is August.

Diamond Sports under pressure

Diamond Sports’ senior notes were under pressure as negotiations to restructure the debt stalled.

The 5 3/8% senior secured notes due 2026 dropped 2½ points to close the day at 67 7/8, according to a market source.

There was more than $34.5 million in reported volume.

The 6 7/8% senior notes due 2035 were down more than 3½ points to 49½ with more than $15 million in reported volume.

Diamond Sports’ secured and unsecured tranches were under pressure on Tuesday following news that parent company Sinclair had been unable to reach an agreement with creditors regarding a restructuring of the debt, a source said.

The notes were the worst performers of Tuesday’s session.

Rumors that a debt restructuring was on the horizon pushed the notes higher throughout April and May.

However, they have steadily trended lower throughout June.

Monday outflows

The dedicated high-yield bond funds saw $41 million of net outflows on Monday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds sustained $25 million of outflows on the day.

High-yield ETFs saw $16 million of outflows on Monday, according to the source who specified that flows for a few of the ETFs were missing at the time that those numbers were reported.

The combined funds are tracking $324 million of net inflows for the week that will conclude with Wednesday's close, the source added.

Indexes mixed

Indexes were again mixed on Monday with some flat while others posted nominal gains.

The KDP High Yield Daily index was flat and closed Tuesday flush with Monday at 69.9. However, the yield shaved off 1 basis point to 3.81%.

The index was down 2 points on Monday.

The ICE BofAML US High Yield index inched up 3.5 bps with the year-to-date return now 3.132%.

The index gained 10.3 bps on Monday.

The CDX High Yield 30 index rose 16 bps to close Tuesday at 110.09.

The index jumped 30 points on Monday.

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