News Corp. shows up in junkland; McAfee, athenahealth improve; Wesco gives back gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 8 – An active Tuesday session in the dollar-denominated high-yield primary market saw three issuers price an overall $600 million face amount of notes.

The bulk of that total came from a new offer from News Corp.

Meanwhile, the tone in the secondary space improved on Tuesday despite a 10-year Treasury yield that was firmly entrenched above the 1.9% threshold.

The 10-year Treasury yield continued to climb higher, hitting as high as 1.971% before closing the day at 1.964%.

While the secondary space faded into the close to end the day largely unchanged, a risk-on sentiment was returning to the market, a source said.

Several badly battered recent deals improved during Tuesday’s session.

Condor Merger Sub, Inc.’s (McAfee Corp.) 7 3/8% senior notes due 2030 (Caa2/CCC+) and athenahealth (Minerva Merger Sub, Inc.) 6½% senior notes due February 2030 (Caa2/CCC/CCC+) were both posting gains in active trading.

Outside of recent issues, Wolverine Escrow’s junk bonds (Wesco Aircraft Holdings Inc.) remained active with the secured notes giving back their gains from the previous session.

New News paper

Tuesday’s biggest deal came from News Corp. which priced a $500 million issue of 5 1/8% 10-year senior notes (Ba1/BB+) at par, at the tight end of talk.

The market took an active interest in the high-double-B offer, according to a bond trader who added there were plenty of “real money” accounts in the deal.

At the time it launched it was playing to a $1.2 billion order book, the source added.

Looking to Wednesday's session, Studio City Co. Ltd. is expected to price a $300 million offering of five-year senior secured notes (Ba3/B+).

Initial talk is in the low 7% area.

The deal rode into the market on the back of a healthy amount of reverse inquiry, including significant reverse inquiry from Asian high-yield accounts, a trader said.

LBOs improve

Two of the year’s largest junk bond issues, which came as part of leveraged buyout deals, improved on Tuesday as a risk-on sentiment returned to the market.

McAfee’s 7 3/8% senior notes due 2030 gained about ¼ point in active trading.

The notes flirted with a 99-handle early in the session. They traded as high as 99 3/8 but lost steam as the session progressed and were changing hands in the 98 7/8 to 99 1/8 context heading into the market close, a source said.

The notes have struggled since the $2.02 billion issue, which priced at par, hit the secondary space on Feb. 3.

The notes have traded below par since breaking for trade and closed the previous session on a 98-handle.

athenahealth’s 6½% senior notes due February 2030 were also on the rise in high-volume activity on Tuesday.

The 6½% notes rose to a 98-handle. They were trading in the 98 to 98½ context heading into the market close.

The 6½% notes hit 97 3/8 on Monday – their lowest level since the $2.35 billion issue, which priced at par, broke for trade on Jan. 27.

While athenahealth’s 6½% notes played to heavy demand during bookbuilding, the notes priced tight for a triple hook and have struggled under heavy market conditions.

Wesco active

In a carryover from the previous session, Wesco’s senior notes continued to see heavy volume following news the company, which now does business as Incora, had hired restructuring advisors.

While active, the notes were mixed with the 8½% senior secured notes due 2024 giving back their gains and returning to their previous level while the 9% senior notes due 2026 were largely unchanged.

The 8½% notes fell almost 2 points in high-volume activity during Tuesday’s session.

The notes were changing hands in the 83¾ to 84½ context heading into the market close.

The notes returned to their previous trading level after bouncing more than 2 points over the past two sessions, a source said.

While Wesco’s 8½% senior notes sold off on Tuesday, the company’s 9% senior notes due 2026 were largely unchanged with the notes consolidating around 85½, a source said.

Wesco’s 8½% notes traded as high as 88½ on Monday following news the aerospace parts company had hired restructuring advisors to help it address its debt burden with looming maturities.

Fund flows

High-yield ETFs saw $278 million of inflows 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 $95 million of outflows on the day.

The combined funds are tracking $912 million of net outflows for the week that will conclude with Wednesday's close, according to the market source.

New issue activity has slowed, sources say.

Heading into the middle of the sixth week of the year the primary market has seen $31.2 billion of 2022 issuance.

In 2021 to the Feb. 8 close nearly twice that amount, $60.7 billion, had cleared the market.

At present, with the yield of the 10-year Treasury pushing 2% and the specter of higher interest rates hanging over the markets, high-yield is stuck, a buyside source opined on Tuesday.

Coupons need to go higher, the source said.

Issuers, of course, won't care much for it, but sooner or later the market will get there, the buysider assured.

Indexes

The KDP High Yield Daily index rose 4 points to close Tuesday at 63.32 with the yield now 4.92%.

The index sank 15 points on Monday.

The CDX High Yield 30 index rose 18 basis points to close Tuesday at 106.3. The index was up 4 bps on Monday.

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