HY secondary extends rally; Twitter tops par; Sprint’s 2023 notes trade; SPX Flow stalls

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 17 – No issuers unexpectedly turned up in the junk bond primary market on Thursday and the calendar deal from SPX Flow Inc. (Redwood Star Merger Sub. Inc.) has yet to price after a day of last-minute alterations and cuts.

Meanwhile, the secondary space extended its rally Thursday with the market gaining another 3/8 to ½ point, sources said.

Buyers were reentering the space as a risk-on sentiment returned following the Federal Reserve’s rate hike announcement on Wednesday.

The 25 basis points increase announced on Wednesday was largely in line with expectations and the recession fears that had sparked Monday’s brutal sell-off were temporarily mitigated by chair Jerome Powell’s comments about the strength of the economy, sources said.

Twitter, Inc.’s recently priced 5% senior notes due 2030 (Ba2/BB+) topped par in active trading on Thursday after hitting their lowest level since pricing earlier in the week.

Sprint Corp.’s 7 7/8% senior notes due Sept. 15, 2023 were active on Thursday although with little change in price as the short-duration notes switched hands.

Energy credits were also on the rise as crude oil futures again shot above $100 a barrel with Transocean Inc.’s 8% senior notes due Feb. 1, 2027 and Occidental Petroleum Corp.’s 6.45% senior notes due 2036 gaining in active trading.

While the secondary space was markedly improved over the past three sessions, outflows continued.

High-yield mutual and exchange-traded funds saw $1.65 billion leave the space in the week to Wednesday’s close, according to the Refinitiv Lipper Fund Flows report.

It was the sixth consecutive week of outflows for the space.

SPX Flow dammed up

Thursday once again saw the high-yield primary market generate an altogether anemic flow of news.

The one remaining deal in the market, the SPX Flow Inc. (Redwood Star Merger Sub. Inc.) $570 million offering of eight-year senior notes (Caa2/CCC), backing Lone Star Funds' acquisition of the company, has been facing stiff headwinds, according to market sources.

The dealer is now expected to offer the notes at a steep discount, perhaps as low as 91, with an expected all-in yield between 10¼% and 10½%, according to a sellside source who added that the partially syndicated bridge loan backing the bonds is capped at 8¾%, 175 basis points below the wider end of the guidance now under consideration.

The dealer, BofA, along with the bridge participants, would be on the hook for the difference between the ultimate yield and the cap.

Initial guidance, in the high 8% to 9% area, was, itself, wide of the bridge cap, the source noted.

Significant covenant concessions are also expected, the sellsider said.

The deal ran a full roadshow that was scheduled to conclude on Thursday.

In the early part of 2022 high-yield investors staged warm receptions for bonds backing acquisitions, in part because they represent net new issuance, meaning investors were not simply replacing a near-term maturity with a longer one, as in a refinancing. And the acquisition deals tend to be big, and therefore liquid issues, also an investor preference.

However geopolitical uncertainties, and the growing magnitude of inflation have significantly eroded risk appetite, sources say.

Twitter tops par

Twitter’s recently priced 5% senior notes due 2030 topped par on Thursday for the first time since early March.

The notes rose 2 points in high-volume activity to close the day in the 99 7/8 to par ¼ context, according to a market source.

There was about $22 million in reported volume.

The notes hit their lowest level on Monday since pricing at par on Feb. 23.

They traded down to a 96-handle but have gained about 4 points over the past two sessions as market conditions improved.

Sprint active

Sprint’s 7 7/8% senior notes due Sept. 15, 2023 were active on Thursday although with little movement in price.

The 7 7/8% notes continued to trade on a 106-handle and were changing hands in the 106 3/8 to 106 5/8 context heading into the market close, according to a market source.

The current yield on the notes is 3.346%.

There was about $23 million in reported volume.

The notes were active with buyers seeking out short-duration paper.

“People are putting their money to work at the short end of the curve,” a source said.

Energy credits gain

Thursday marked another strong day for energy credits as crude oil futures resumed their climb, once again topping $100 a barrel.

Occidental’s 6.45% senior notes due 2036 increased about ½ point in active trading.

The notes were changing hands in the 118 to 118½ context heading into the market close, according to a market source.

There was $17 million in reported volume.

The yield on the notes was now 4.666%.

Transocean’s 8% senior notes due 2027 climbed 2 points to close the day at 80½. There was $15 million in reported volume.

The yield on the notes was 13.6%, according to a market source.

Energy credits were rising alongside crude oil futures, which once again topped $100.

West Texas Intermediate crude oil futures settled at $103.67, an increase of $8.63 or 9.08%. Brent crude oil futures settled at $107.09, an increase of 45 cents or 0.42%.

Rising crude oil prices contributed to the inflation concerns that drove the high-yield market lower over the past two weeks.

However, with those concerns temporarily assuaged energy credits were rallying alongside the broader market.

Fund flows

The weekly cash flows of the dedicated corporate bond funds remain decidedly negative, according to market sources.

High-yield bond funds sustained $1.65 billion of outflows in the week to Wednesday's close, according to a report from fund tracker Refinitiv Lipper.

It follows the previous week's $1.6 billion outflow, a market source noted.

Meanwhile the dedicated investment-grade bond funds sustained $3.13 billion of outflows in the week to Wednesday.

For the high-grade funds it was the fifth consecutive weekly outflow, the longest run of outflows since the six straight negative flows that got underway in March 2020, when news of the coronavirus pandemic broke.

Indexes

The KDP High Yield Daily index gained 43 points to close Thursday at 61.61 with the yield now 5.48%.

The index jumped 40 points on Wednesday after losing 1 point on Tuesday and 61 points on Monday.

The KDP High Yield Daily index rose another 43 bps to close Thursday at 105.74.

The index gained 111 basis points on Wednesday and 45 bps on Tuesday after dropping 28 bps on Monday.

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