Two deals clear the HY primary; Penn Gaming flat; At Home at a premium; Centene improves

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 25 – A typical summer Friday in the primary market saw a pair of deals price amid a light news flow.

Kantar Summer Bidco B LLC priced an upsized $425 million issue (from $400 million) of five-year senior secured notes (B2/B-).

And Ambac Financial Group, Inc. brought a rare floating-rate deal to the dollar-denominated primary.

Meanwhile, Magpul Industries Corp. was rumored to have abandoned its $300 million of seven-year senior secured second-lien notes (B1).

A slowdown in new issuance is expected in the week ahead as the July 4 holiday approaches.

However, Vivint Smart Home Inc. (APX Group Inc.) is expected to tap the market with a $900 million offering of senior notes.

Meanwhile, the secondary space remained firm on Friday with credit spreads near all-time tights and the CDX index at all-time highs.

“When it gets to this point, there’s a pause,” a source said.

While the market could continue to push higher, there is an air of anxiety among market players about a potential correction, especially with rate increases on the horizon.

“There’s definitely a feeling that the market is running out of gas,” the source said.

New deals remained in focus in the secondary space although with mixed trajectories.

Ambience Merger Sub, Inc.’s (At Home Group Inc.) secured and unsecured notes were also putting in strong performances in the secondary space, although they were coming in from the heights reached after breaking for trade.

Centene Corp.’s split-rated 2.45% senior notes due 2028 (Ba1/BBB-/BB) were gaining momentum in the secondary space after a lackluster break.

However, Penn National Gaming Inc.’s 4 1/8% senior notes due 2029 (B3/B-), which came on Thursday, were struggling in the aftermarket with the notes closing Friday wrapped around par.

Friday’s primary

A typical summer Friday in the primary market saw a pair of deals price amid a light news flow.

From the middle of the fairway came Kantar Summer Bidco B LLC which priced an upsized $425 million issue (from $400 million) of five-year senior secured notes (B2/B-) at the tight end of talk.

Elsewhere, Ambac Financial Group brought a rare floating-rate deal to the dollar-denominated primary.

Although unrated, the downsized $1.175 billion issue (from $1.19 billion) of five-year senior secured FRNs came with plenty of coupon: a 450 basis points spread to Libor atop a 75 bps Libor floor.

It priced at 99, the rich end of the 98 to 99 price talk.

Magpul pulled?

Pending any official announcement, the market continued to hum with news that Magpul Industries abandoned an effort to place $300 million of seven-year senior secured second-lien notes (B1), a Rule 144A/Regulation S deal heard to face stiff resistance.

The Austin, Tex.-based company manufactures firearms accessories such as bump-stocks, as well as the detachable plastic magazines that enable a shooter to get off 30 rounds before reloading, which police recovered in mass shootings that took place at the Mandalay Bay Hotel in Las Vegas, and at Sandy Hook School.

The pushback that Magpul engendered in the high-yield market may have surfaced prior to the deal's launch, as the company selected B. Riley Securities as bookrunner, a name not customarily seen in the week-to-week business of the primary market, implying, sources say, that the mainstream dealers may not have been keen to get involved.

From there the sledding got tougher. The initial talk was in the 5½% area, however there appeared to be some price discovery underway, according to traders.

At one point the company floated the idea of enhancing the deal with first-lien security, in place of the second-lien structure that was announced, a trader said.

“A year ago this deal might have gotten done,” a high-yield bond investor said on Friday.

“Not now,” the source asserted, adding that the mainstream market shunned the deal, largely because of the growing importance of environmental, social, and corporate governance (ESG) issues.

The week ahead

Turning to the week ahead, the new issue machine is apt to slow down during the run-up to the extended Independence Day holiday weekend...a three-day weekend that some will attempt to jockey into a four-day summer break by taking off Friday, in addition to the Monday observation of the holiday, sources say.

Vivint (APX Group Inc.) is expected to launch a $900 million offering of senior notes. The company has undertaken a debt refinancing that also includes a bank loan which launched Thursday.

And in Europe BNP Paribas circulated a save-the-date notice to investors for a Monday presentation of a benchmark euro-denominated notes offer from an issuer in the commercial services sector.

Penn National struggles

Turning to the secondary market, Penn National’s 4 1/8% senior notes due 2029 were struggling in the aftermarket.

While nominally improved on Friday after dipping below par on the break, the notes remained flat.

They stood poised to close the day at par.

Sources pointed to the notes’ tight pricing and apprehension about a pull-back in the market as reasons for the poor performance of the notes.

Penn National priced a $400 million issue of the 4 1/8% notes at par on Friday.

Pricing came at the tight end of the 4 1/8% to 4 3/8% yield talk.

At Home’s tranches

Ambience Merger’s secured and unsecured tranches backing the buyout of At Home Group by Hellman & Friedman were putting in strong performances in the secondary space.

While both tranches were coming in from the heights reached after breaking for trade, they held on to large premiums.

As has been a recent theme, the unsecured tranche outperformed their secured counterpart.

At Home’s 4 7/8% senior secured notes due 2028 (B1/B) were marked at par ¾ bid, 101¼ offered on Friday afternoon, sources said.

They closed out the previous session at 101 3/8 offered.

The 7 1/8% senior notes due 2029 (Caa1/CCC+) were marked at 101 bid, 101½ offered late Friday.

They closed out the previous session at 101 5/8 offered.

Despite their lower credit rating, the 7 1/8% notes outperformed the secured tranche.

Both tranches were well spoken for during bookbuilding, a source said. However, there was a large spread between the two coupons.

“It makes sense that people piled into the unsecureds. It’s pretty cheap relatively speaking,” a source said.

At Home priced a $300 million tranche of the 4 7/8% notes and a $500 million tranche of the 7 1/8% notes at par on Thursday.

The 4 7/8% notes printed at the tight end of yield talk in the 5% area; the 7 1/8% notes printed at the tight end of yield talk in the 7¼% area.

Centene gains momentum

Centene’s split-rated 2.45% senior notes due 2028 gained momentum on Friday after a lackluster break the previous session.

The 2.45% notes were marked at par ½ bid, 101 offered late Friday, according to a market source.

They were par to par ¼ bid on the break on Thursday.

While the notes were performing well on the break, sources were apprehensive about the future of the notes, especially with rate hikes looming.

While rated investment grade by S&P Global Ratings, the notes are a double-B credit on one side. With a 2-handle, the notes will be among the first to trade off if investors once again look to shed duration and rate risk, a source said.

Centene priced a $1.8 billion issue of the 2.45% notes at par on Thursday.

The yield printed at the tight end of the 2.45% to 2 5/8% yield talk.

$257 million Thursday inflows

The dedicated high-yield bond funds saw $257 million of net daily inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $247 million of inflows on the day.

Actively managed high-yield funds saw $10 million of inflows on Thursday, the source said.

News of Thursday's flows followed a Thursday report that the combined funds saw $189 million of net inflows during the week to the Wednesday, June 23 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

It was the first weekly inflow in eight weeks, the market source noted.

Indexes

Indexes continued to grind higher on Friday.

The KDP High Yield Daily index rose 6 points to close the day at 70 with the yield now 3.76%.

The index inched up 1 point on Thursday, 3 points on Wednesday, was flat on Tuesday and was down 2 points on Monday.

The index posted a cumulative gain of 8 points on the week.

The ICE BofAML US High Yield index rose 7.9 bps with the year-to-date return now 3.402%.

The index gained 11.1 bps on Thursday, 8 bps on Wednesday, 3.5 bps on Tuesday and 10.3 bps on Monday.

The index posted a cumulative gain of 40.8 bps on the week.

The CDX High Yield 30 index rose another 15 bps on Friday to close the day at 110.4.

The index gained 15 bps on Thursday, 1 bp on Wednesday, 16 bps on Tuesday and 30 bps on Monday.

The index gained 77 bps on the week.

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