Air Canada leads $2.1 billion day; secondary dips; Novelis in focus; Carnival drops to par

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 27 – In the face of considerable selling in the stock market, high-yield bonds held in on Tuesday, according to a bond trader who was marking junk unchanged to perhaps 1/8 of a point lower, early in the afternoon.

The market should have no problem clearing the large calendar that materialized on Monday, the trader said, adding that high-yield investors seem to have decent cash balances and deals tend to be oversubscribed.

With respect to that large calendar, the market made headway on Tuesday, as three issuers, each bringing a single dollar-denominated tranche, raised a combined $2.1 billion.

Executions were mixed, with one tranche pricing inside of talk while the other two priced at the wide end.

Air Canada priced an upsized $1.2 billion five-year senior bullet (Ba2/BB-/BB) at par to yield 3 7/8%, 12.5 basis points tighter than the 4% to 4¼% talk. The tranche was raised from $1 billion.

The Montreal-based carrier also priced an upsized C$2 billion tranche of eight-year senior notes at par to yield 4 5/8%, on top of talk. The Canadian dollar-denominated tranche was increased from C$1.5 billion.

Judging by the wide level of interest in the market for the Air Canada deal, the notes in both tranches are expected to trade well, the trader said.

Still, the secondary space was weak on Tuesday as the market eyed Wednesday’s press conference following the Federal Reserve Open Market Committee Meeting.

While the market was down 1/8 point, volume remained light with liquidity outside of new issues sparse.

“Even with the sell-off, you can’t really buy anything,” a source said.

Novelis Corp.’s two tranches of senior notes (B1/BB) were in focus with the notes coming in slightly from the heights reached after breaking for trade.

However, the tranches continued to change hands with a solid premium in the aftermarket.

Acrisure, Penn Virginia price

Elsewhere in the primary Acrisure LLC and Acrisure Finance Inc. priced a $500 million issue of 6% eight-year senior notes (Caa2/CCC+) at par, at the wide end of talk in the 5 7/8% area.

And Penn Virginia Corp. priced a $400 million issue of 9¼% five-year senior notes at 99.018 to yield 9½%.

The coupon came at the wide end of the 9% to 9¼% coupon talk while the yield printed at the wide end of the 9¼% to 9½% yield talk. The deal also priced at the cheap end of initial guidance for a yield in the low-to-mid 9% area. In addition there were covenant changes.

As Penn Virginia cleared, one other energy deal remained on the active calendar.

Venture Global Calcasieu Pass LLC, a unit of Venture Global LNG, Inc., began marketing a $1.5 billion two-part offering of senior secured bullet notes (Ba3/BB) on Monday.

Most of that deal is heard to be done in reverse inquiry, the trader said.

Monday fund flows

High-yield ETFs sustained $184 million of 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 were positive on the day, seeing $70 million of inflows on Monday, the source said.

The combined funds are tracking $1.09 billion of net inflows for the week that will conclude with Wednesday’s close, according to the market source.

Weak secondary

It was a weak day in the secondary space with sources pointing to the upcoming press conference following the Federal Reserve Open Market Committee Meeting or the sell-off in China-based equities and bonds as causes.

Spreads were wider on Tuesday with the 10-year Treasury yield on the rise; however, it failed to cause any real movement in the junk space.

While the market was softer, there was no real selling with paper still hard to buy, a source said.

The cash bond market held up relatively well compared to the sell-off in equities, with the market down about 1/8 point at the close.

However, the CDX index was trending much lower and was down about ½ point at the low of the day.

There is concern in the market that the Federal Reserve will shift the tone about its monetary policy to rein in inflation.

The Federal Reserve has already been offloading some of the investment-grade paper in its portfolio, a source said.

While not a substantive amount, the Federal Reserve has been selling its IG paper through electronic platforms for the past few weeks, a source said.

The activity may be a sign that bond tapering may come sooner than expected.

However, until the Federal Reserve releases a statement or officially changes its outlook, the secondary space is expected to remain strong.

Novelis in focus

Novelis’ two tranches of senior notes were coming in from the heights reached after breaking for trade.

However, both tranches continued to circulate with a solid premium.

The paper was down about ¼ point, a source said.

The 3 7/8% notes due 2031 and the 3¼% notes due 2026 were both changing hands in the par ½ to 101 context heading into the market close, a source said.

The 3 7/8% notes saw about $65 million in reported volume while the 3¼% notes saw about $37 million in reported volume.

The notes played to heavy demand during bookbuilding.

Novelis priced a $750 million tranche of the 3¼% notes and a $750 million tranche of the 3 7/8% notes at par on Monday.

The 3¼% notes priced tighter than talk for a yield in the 3½% area; the 3 7/8% notes priced tighter than talk for a yield in the 4 1/8% area.

Weaker

Several other recent issues were down in active trading alongside the broader market.

DirecTV Entertainment Holdings LLC’s 5 7/8% senior secured notes due 2027 (Ba3/BB/BBB-) continued to trend lower in active trading, losing another ¼ point after shaving off ¼ point on Monday.

They were changing hands in the 103¼ to 103 3/8 context heading into the market close.

The notes remained active with more than $62 million in reported volume.

DirecTV’s 5 7/8% notes have slowly come in since hitting 104 last Friday.

The satellite broadcaster priced the $2.3 billion issue at par on July 22.

Carnival Corp.’s 4% first-priority senior secured notes due 2028 (Ba2/BB-) were also losing steam, trading back down to par on Tuesday.

They were changing hands in the 99 7/8 to par 1/8 context heading into the market close, according to a market source.

There was more than $37 million in reported volume during the session.

The notes have largely traded in the par 3/8 to par 5/8 context since the cruise line operator priced the $2,405,500,000 issue at par on July 21.

Indexes

The KDP High Yield Daily index lost off 3 bps to close Tuesday at 70.18 with the yield now 3.69%. The index was up 3 bps on Monday.

The CDX High Yield 30 index dropped 28 bps to close Tuesday at 109.35.

The index fell 12 bps on Monday.

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