Junk secondary turns positive, market ‘crazy’; Twitter opens underwater, closes at premium

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 24 – The secondary space broke its losing streak on Thursday and turned positive in a wild day of trading, sources said.

There was panic selling early in the session with the cash bond market down ½ to 1 point as investors digested Russia’s invasion of the Ukraine.

However, buyers entered the space following President Biden’s speech announcing additional sanctions against Russia.

The speech addressed moves to forestall a worsening of inflation that could result from a big spike in energy prices.

Biden said the United States is working with oil producers to secure global energy supplies, a market source noted.

Good for financial markets, oil and gas were not mentioned among the sanctions announced by the White House, the source added.

The speech helped to drive the market up ½ to 5/8 point by the close, sources said.

“This market is crazy,” a source said. “In the morning you were hitting bids and in the afternoon you were crying because you sold too cheap.”

Twitter, Inc.’s 5% senior notes due 2030 (Ba2/BB+) reflected the volatility of the day. The notes opened down with steep losses but closed the day with a premium.

Scientific Games Holdings LP’s 6 5/8% senior notes due 2030 (Caa2/B/B) also closed with gains after trading down to their lowest level since breaking for trade on Feb. 3.

Quad/Graphics Inc.’s 7% senior notes due 2022, an off-the-run issue rarely on the tape, saw nominal gains in active trading on Thursday.

Meanwhile, high-yield mutual and exchange-traded funds continued to see outflows with $966 million leaving the space in the week through Wednesday’s close, according the Refinitiv Lipper Fund Flows report.

While the outflows continued, their volume diminished with the past week marking the first outflow of February to come in under $1 billion.

Funds saw $3.55 billion leave the space in the week closing Feb. 16; $1.962 billion exiting the space in the week closing Feb. 9; and $4.043 billion exit in the week closing Feb. 3.

Primary: the bell tolls

In an otherwise quiet high-yield new issue market, which was sidelined by global capital markets volatility that followed in the wake of Russia's invasion of the Ukraine, BellRing Distribution, LLC withdrew its $840 million offering of 10-year senior notes (B3/B) from the market.

The deal began a brief roadshow on a Tuesday, coming with initial guidance in the 7% area, and was on deck to price Thursday.

In a Thursday press release the company cited the volatility as the reason for pulling the deal, and stated that it expects to commence a debt financing transaction in the coming weeks (see related story in this issue).

Twitter volatile

Twitter’s 5% senior notes due 2030 were in focus on Thursday with the notes the first new paper to hit the secondary space since Feb. 10.

The aftermarket trajectory of the notes reflected the volatility of the broader markets.

The 5% notes were marked at 98 bid, 99 offered early in Thursday’s session after closing Wednesday at 99¾ bid, par ¼ offered.

However, the notes were lifted alongside the broader market as the session progressed.

They were traded as high as par 5/8 and were changing hands in the par to par ½ context heading into the close.

Twitter priced a $1 billion issue of the 5% notes at par in a Wednesday drive-by. The notes printed at the wide end of the 4 7/8% to 5% yield talk.

The deal was heard to have played to a $2 billion order book.

Twitter last tapped the market in December 2019, pricing a $700 million issue of 3 7/8% senior notes due 2027 at par.

The deal was notable at the time because it was one of only a few deals to price with a 3-handle in 2019, pricing which became commonplace post-pandemic stimulus.

The 3 7/8% notes were wrapped around 98 on Thursday.

Scientific Games down, then up

Scientific Games’ 6 5/8% senior notes due 2030 also closed in positive territory after hitting their lowest level since pricing during Thursday’s session.

The 6 5/8% notes dropped to a 97-handle early in the session and were changing hands in the 97 to 97½ context.

However, they jumped as buyers reentered the space following Biden’s speech and closed the day up ¼ point at 96 5/8, a source said.

There was $20 million in reported volume.

The 6 5/8% notes have struggled below their issue price since Scientific Games sold the $800 million issue at par on Feb. 3.

The notes have traded on a 98-handle since mid-February until early in Thursday’s session.

Quad/Graphics active

Quad/Graphics’ 7% senior notes due 2022 made an unusual appearance on the tape on Thursday with the off-the-run issue active following earnings.

The 7% notes were up about ½ point to close the day wrapped around par, a source said.

There was $19 million in reported volume.

The notes were active following the company’s earnings report. While earnings missed expectations, the company reported a narrower loss year-over-year and projected sales growth in 2022.

Indexes

The KDP High Yield Daily index fell 19 points to close Thursday at 62.21 with the yield now 5.27%.

The index shaved off 1 point on Wednesday and slid 10 points on Tuesday.

The CDX High Yield 30 index climbed 44 basis points to close Thursday at 105.4 after trading as low as 104.318 during Thursday’s session.

The index fell 18 bps on Wednesday and 24 bps on Tuesday.

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