Guitar Center adds on; HY secondary erases gains; rate-sensitive names down; Macy’s dips

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 10 – Guitar Center, Inc. priced a drive-by deal in the junk bond primary market on Thursday.

One more calendar may be staged for pricing on Friday.

Meanwhile, the rally that drove the secondary space up about 1 point on Wednesday proved to be short-lived with the market again under pressure following the latest consumer price index report.

The secondary space was down ½ to 1 point on Thursday with rate-sensitive names among the hardest hit as the 10-year Treasury yield again brushed up against the 2% threshold.

However, the market showed some signs of stability even amid the weakness on Thursday, a source said.

Charter Communications’ split-rated senior notes were lower as rate risk returned to focus and the company prepped a new investment-grade offering.

Charter subsidiary CCO Holdings LLC’s 4¾% senior notes due 2032 also traded down following a rating downgrade on the heels of Charter’s latest offering.

After rallying the previous session, Macy's Retail Holdings LLC’s two tranches of senior notes (Ba2/BB/BBB-) sank back below par in active trading.

High-yield funds continued to see outflows which again topped $1 billion in the week through Wednesday’s close.

High-yield mutual and exchange-traded funds saw outflows of $1.6 billion, according to the Refinitiv Lipper Fund Flows report.

The outflow marked the fifth consecutive week of outflows for the space.

Thursday primary

The high yield new issue market continued to pay out news in mean amounts on Thursday.

Guitar Center, Inc. priced a $200 million add-on to its 8½% senior secured notes due Jan. 15, 2026 (B3/B) at 100.5 in a drive-by.

The issue price came at the rich end of talk (see related story in this issue).

At Thursday's close one more deal was poised to clear ahead of the weekend.

Carpenter Technology Corp. began marketing a $300 million public offer of eight-year senior notes (B2/BB+/BB) on Wednesday, with initial guidance in the low-to-mid 7% area.

The deal was set to price Friday, at the conclusion of a brief roadshow.

The offer was heard to be playing to $425 million of demand on Thursday afternoon, with the underwriter claiming that more orders were filling in, a market source said, adding that people were watching for timing to be accelerated, with Carpenter Technology's notes possibly pricing Thursday night.

However, neither official price talk nor deal terms had been heard, as evening closed in.

Settling in

The secondary space was again lower on Thursday, giving back most of its gains from a strong rally the previous session.

The market was off about ½ to 1 point on Thursday with rate-sensitive names among the worst performers of Thursday’s session.

However, the market was beginning to show signs of stability.

While the war in the Ukraine is still raging with the optimism surrounding a cease-fire that drove up the market on Wednesday fading, the market has largely already priced in the risks associated with the conflict, a source said.

While the latest CPI report came in slightly above expectations with a 7.9% annual rate, there were signs of complacency in the market.

“The heavy selling earlier in the week has abated. The market is kind of settling in,” a source said.

Even under heavy market conditions there was no forced selling with the leverage in the system low, the source said.

Inflation and rising rates were returning to focus as the primary threat to the market as the 10-year Treasury yield again climbed above the 2% threshold.

The 10-year Treasury yield hit 2.021% before coming in slightly to close at 1.994%.

The Federal Reserve officially ended its bond buying program.

While rate-sensitive names were again among the worst performers in the market, the short-end of the curve remained well bid, a source said.

Charter down

Charter’s split-rated notes and the junk bonds of subsidiary CCO Holdings were under pressure on Thursday amid Charter’s latest investment-grade offering and rising rates.

Charter’s 3.9% senior notes due 2052 (Ba1/BBB-) fell 1½ points on Thursday.

They returned to an 81-handle and were changing hands in the 81 3/8 to 81 5/8 context heading into the market close.

While the notes saw a temporary reprieve as Treasuries rallied following Russia’s invasion of the Ukraine, they have been on a strong downtrend throughout the year.

The notes closed 2021 on a par-handle.

Subsidiary CCO Holdings’ 4¾% senior notes due 2032 (B1/BB-) were also under pressure following a ratings downgrade after Charter’s latest offering.

The 4¾% notes fell 1 point to close Thursday at 93.

S&P Global Ratings announced that it was lowering its issue-level rating on CCO Holdings to BB- from BB due to Charter’s shift towards secured debt. (See related article in this issue.)

Charter announced a three-tranche offering of senior secured notes on Thursday.

Macy’s below par

After rallying the previous session, Macy’s recently priced tranches of senior notes dropped to their lowest level since hitting the aftermarket.

Macy’s 5 7/8% notes due 2030 were marked at 99½ bid, par offered heading into the market close.

The 6 1/8% notes due 2032 sank to 99 3/8 bid, 99 5/8 offered.

“They’ve been volatile,” a source said.

Both tranches were above par and trading in the par ½ to par ¾ context during Wednesday’s rally.

The notes saw a strong aftermarket debut and traded as high as 102 after breaking for trade but have been on a steady downtrend since.

Macy’s priced a $425 million tranche of the 5 7/8% notes and a $425 million tranche of the 6 1/8% notes at par on March 2.

Indexes

The KDP High Yield Daily index fell 17 points to close Thursday at 61.77 with the yield now 5.43%.

The index gained 6 points on Wednesday after sinking 35 points on Tuesday and 21 points on Monday.

The CDX High Yield 30 index sank 37 basis points to close Thursday at 104.45.

The index was up 86 bps on Wednesday and 36 bps on Tuesday after sinking 82 bps on Monday.

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