Presidio adds-on; Novolex on deck; Plantronics spikes on buyout; YUM! improves; Occidental active

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 28 – The March-to-April crossover week got underway to a modest burst of new-issue activity in the dollar-denominated high-yield bond market.

Presidio Holdings Inc. priced an upsized $125 million add-on to its 8¼% senior notes due Feb. 1, 2028 (Caa1/CCC+) at 99 to yield 8.467% in a drive-by.

The issue size increased from $100 million.

The issue price came at the rich end of the 98.76 to 99 price talk.

Elsewhere dealers took the wrapper off of a well-telegraphed megadeal supporting the buyout of Novolex Holdings LLC by Apollo.

A roadshow started for the Clydesdale Acquisition Holdings Inc. (Novolex) $1.98 billion two-part offering of sustainability-linked notes.

The deal includes $750 million of seven-year senior secured notes (expected ratings B2/B). Initial guidance has the secured notes coming to yield in the low 7% area with an expected original issue discount. Pre-marketing indications had the secured notes coming with a 6¾% coupon at 97.5 to yield in the low 7% area.

The deal also includes $1.23 billion of eight-year senior unsecured notes (expected ratings Caa2/CCC+). Initial guidance on the unsecured notes has them pricing 250 basis points to 290 bps behind the secured notes, also with an expected original issue discount. Pre-marketing indications had the unsecured notes coming with an 8¾% coupon at 96 to yield in the mid-9% area.

Demand for the secured Novolex LBO paper is already heard to exceed supply, a sellside source said, adding that by mid-morning on Monday the $750 million of secured bonds were heard to be playing to $1.1 billion of demand.

Meanwhile the market heard that there was $825 million of demand for the $1.23 billion of unsecured notes.

Books are expected to close on Wednesday.

Meanwhile, demand for the $2.63 billion bank loan is simply over the top, sellsider added.

It was a relatively quiet day in the secondary space with the cash bond market unchanged to slightly softer as the Treasury yield curve continues to flatten.

While market players are keeping a close eye on Treasuries, trading activity in the secondary space was light as the end of the quarter approaches.

“Nobody wants to do anything,” a source said.

Topical news and recent issuers were the main drivers of activity in the space.

Plantronics Inc. (Poly)’s 4¾% senior notes due 2029 (B2/B) were the major winners of Monday’s session with the notes gaining almost 20 points following news of HP Inc.’s acquisition of the company.

Yum! Brands, Inc.’s newly priced 5 3/8% senior notes due 2032 (Ba3/BB) were improved in active trading with the notes reclaiming par by market close.

Occidental Petroleum Corp.’s 3½% senior notes due 2029 (Ba2/BB+) were active although largely unchanged on Monday as crude oil futures came in and Treasury yields remained elevated.

Quarter-end in sight

Heading into the end of 2022's first quarter the new-issuance total is anemic by the standards of the modern market.

Issuance for the first quarter is likely to crawl above the $50 billion mark by Thursday's close, which marks the end of the quarter.

There was $49.17 billion of junk-rated, dollar-denominated issuance as of last Friday's close, according to Prospect News data.

That's 36.3% lower than average first-quarter issuance of $77.2 billion, going back to the beginning of 2010.

Issuance to last Friday was $100-plus billion below that of 2021's $150.21 billion first quarter, the strongest first quarter in the history of the market.

The first quarter of 2022 is putting up the lowest amount of issuance for that period since the first quarter of 2016, which saw $36.16 billion, and is the only first quarter to put up an issuance total lower than the expected 2022 first quarter total.

The low amount of issuance in the first quarter of 2022 has prompted at least one dealer to dial back the outlook for 2022 total-year issuance.

BofA lowered its 2022 issuance estimate by $55 billion, due to rising interest rates and geopolitical volatility, according to a market source.

The bank now sees $340 billion of gross issuance for full-year 2022, the source added.

$192 million Friday outflows

The dedicated high-yield bond funds saw $192 million of net outflows on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $207 million of outflows on the day.

Actively managed high-yield funds were positive on the day, posting $15 million of inflows on Friday, the source said.

Plantronics buyout

Plantronics’ 4¾% senior notes due 2029 were a bright spot in what has been a rough market with the notes spiking almost 20 points following news HP would acquire the Santa Cruz, Calif.-based electronics company.

The 4¾% notes were changing hands in the 101½ to 102 context in heavy volume on Monday, according to a market source.

With $60 million in reported volume, the notes were the most actively traded of the session.

The notes closed last week at an all-time low of 84.

However, news that HP would acquire the company in an all-cash transaction with an enterprise value of $3.3 billion sent the notes soaring.

The notes will be redeemed in the takeover and were trading up to their takeout price, a source said.

Plantronics priced a $500 million issue of the 4¾% notes at par in February 2021.

The notes have spent the majority of their time in the secondary space below par. However, they have been on a strong downward trend since the beginning of the year as the market priced n a higher-rate environment.

The notes hit their lowest level last Friday since breaking for trade.

Yum! improves

Yum!’s newly priced 5 3/8% senior notes due 2032 improved in active trading on Monday with the notes reclaiming par by the market close.

The 5 3/8% notes opened Monday weaker than Friday’s close and were changing hands in the 99 3/8 to 99 5/8 context early in the session.

However, the notes gained steam as the session progressed and were lifted to the 99 7/8 to par 1/8 context heading into the close, according to a market source.

There was $27 million in reported volume.

Yum!’s 5 3/8% senior notes due 2032 have wavered between gains and losses since the $1 billion priced at par on March 24.

The 5 3/8% notes were trading with a nominal premium on the break; however, they closed Friday on a 99-handle amid general weakness in the market.

While the notes initially looked attractive, the large upsize to $1 billion from $500 million and tight pricing took away much of their upside, a source said.

Occidental active

Occidental’s 3½% senior notes due 2029 continued to see active trading on Monday although with little movement in price.

The notes continued to trade in the 97¾ to 98¼ context in heavy volume with the yield about 3 7/8%, according to a market source.

There was $24 million in reported volume.

Occidental 3 ½% notes have been volatile over the past two months with rate concerns driving the notes lower but skyrocketing crude oil futures lifting the notes higher.

The 3½% notes briefly topped par in late February as crude oil futures spiked following Russia’s invasion of the Ukraine.

However, rate concerns have driven the notes lower since mid-March.

Indexes

The KDP High Yield Daily index shaved off 2 bps to close Monday at 61.09 with the yield now 5.64%.

The index posted a cumulative loss of 54 points on the week last week.

The CDX High Yield 30 index fell 35 basis points to close Monday at 104.95.

The index was down 46 bps on the week last week.

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