Secondary pulls back; SPX at a premium; rate-sensitive names lower; Cleveland-Cliffs gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 21 – The high-yield new-issue market remained quiet on Monday, with no deals announced and no deals pricing.

At Monday's close, the active forward calendar contained just one deal.

Owens & Minor Inc. plans to price a $500 million offering of eight-year senior notes (B2/B/BB-) this week.

The acquisition financing notes are in the market with initial guidance in the 7% area.

Meanwhile, selling pressure returned to the secondary space on Monday as the market pulled back from last week’s head-spinning rally.

While the market opened with a firm tone, it turned negative following hawkish comments from Federal Reserve Chair Jerome Powell and a surging 10-year Treasury yield.

The 10-year Treasury yield climbed as high as 2.321% before settling at 2.294%.

The secondary space fell about ¼ point after climbing more than 1 point the previous week.

“It rallied with abandon on really no news,” a source said. “But when it goes down, it goes down reluctantly.”

While bids-wanted-in-competition lists outnumbered offers-wanted-in-competition lists nearly 2 to 1 on Monday, the selling activity in the space remained orderly.

ETFs remained the main drivers of trading activity with little movement from real money accounts, a source said.

Rate-sensitive remained the hardest hit amid the move in Treasuries with Charter subsidiary CCO Holdings LLC’s junk bonds again on the decline.

While CCC credits were also under pressure on Monday, SPX Flow, Inc. (Redwood Star Merger Sub, Inc.) 8¾% notes due 2030 (Caa2/CCC+) were trading at a premium to their deeply discounted issue price.

Cleveland-Cliffs Inc.’s capital structure received a boost following news the company would redeem its 2025 notes.

DaVita Inc.’s senior notes made an appearance on the tape with the notes down slightly in high-volume activity.

SPX Flow at a premium

SPX Flow’s 8¾% notes due 2030 were trading at a premium to their deeply discounted issue price with the notes in light volume on Monday.

The 8¾% notes were seen trading in the 96 to 96¼ context.

“It’s above issue but not by much,” a source said.

SPX priced a downsized $500 million, from $570 million, issue of the 8¾% notes at 95.183 to yield 9 5/8% last Friday.

The deal priced on top of talk for a coupon of 8¾% and at the rich end of talk for a discounted offer price of 93.865 to 95.183 and a yield of 9 5/8% to 9 7/8%.

The deal is the latest leveraged buyout financing deal to clear the primary market with proceeds to be used to support Lone Star Funds’ acquisition of SPX Flow Inc.

The LBO deals of the past year have tended to underperform the market.

CCO down again

Rate-sensitive names again led losses in the secondary space as the 10-year Treasury yield continued to climb above the 2% threshold.

“It was a fast move,” a source said, with the yield up about 15 bps in a single session to settle just shy of 2.3%.

Future predictions for Treasuries are most likely out the window given the volatility in the market.

“With this kind of a move, we’re probably in no man’s land,” a source said.

Charter subsidiary CCO Holdings’ junk bonds were again under pressure during Monday’s session.

The 4½% senior notes due 2032 (B1/BB-) fell 1½ points to close the day in the 91 to 91 1/8 context, according to a market source.

The notes traded to a multi-year low of 88 last Monday as the broader market saw steep declines and S&P Global Ratings downgraded the company’s issuer credit rating to BB- from BB.

However, the notes pared their losses and returned to a 92-handle as the broader market rallied.

DaVita active

DaVita’s junk bonds were off slightly in active trading on Monday.

The 4 5/8% senior notes due 2030 (Ba3/B+) were down about 5/8 point to close the day at 91 5/8, according to a market source.

The yield on the notes was just shy of 6%.

There was $15 million in reported volume.

The 3¾% senior notes due 2031 were off ¼ to close the day at 86¼ with a yield of 5¾%.

There was $13 million in reported volume.

Cleveland-Cliffs gains

Cleveland-Cliffs senior notes were on the rise following news it would redeem the full outstanding amount of its 9 7/8% senior notes due 2025.

The 9 7/8% notes rose 1 point to close the day just shy of 112. There was $12 million in reported volume.

The 4 7/8% senior notes due 2031 also climbed 1 point to close the day wrapped around 99.

There was more than $11 million in reported volume.

The iron ore mining company announced on Monday it will redeem the full outstanding principal balance of $607 million of the 9 7/8% notes on April 20 with available liquidity for debt reduction purposes.

ETFs see $867 million Friday outflows

High-yield ETFs sustained $867 million of daily cash outflows on Friday, according to a market source.

However actively managed high-yield funds were positive on Friday, posting $55 million of inflows on the day, the source said.

Friday's inflow to the actively managed funds snapped a week-long run of consecutive significant daily outflows.

Indexes

The KDP High Yield Daily index fell 11 points to close Monday at 61.54 with the yield now 5.5%.

The index posted a cumulative gain of 25 points on the week last week.

The CDX High Yield 30 index sank 37 bps to close Monday at 105.4.

The index posted a gain of 174 bps on the week last week.

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