Secondary junk ‘in pain’, erases gains from late May rally; CDK, Maxar, Callon under water

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 10 – Thursday’s four deals were executed in the nick of time before volatility rattled the junk bond primary market again on Friday.

It was a red day in the secondary space to end the week as selling pressure accelerated following May’s Consumer Price Index report.

“A lot of people are in pain,” a source said.

The report’s larger-than-expected increases sparked a reassessment of the Federal Reserve’s rate hike schedule, which drove the cash bond market down more than 1 point.

The anticipated pause in rate hikes in the second half of the year, which propelled the secondary space’s spectacular rally in the final days of May, was being reconsidered, a source said.

The ICE BofAML US High Yield index year-to-date returns again plunged past negative-10% and the CDX High Yield 30 index saw its lowest close of the year.

The yield curve again inverted with the five-year Treasury yield hitting a 52-week high of 3.276% before settling at 3.267% and the 10-year Treasury yield settling at 3.163%, within reach of its multiyear high of 3.208%.

The deals to price in the flurry of primary activity on Thursday dominated the tape with most sinking below their issue prices.

Univision Communications Inc. 7 3/8% senior notes due 2030 (B1/B+) were the exception with the notes rallying off their lows to close the day above their discounted issue price.

Callon Petroleum Co.’s 7½% senior notes due 2030 (B3/B/B+) and CDK Global Inc.’s (Central Parent Inc./Central Parent Merger Sub Inc.) 7¼% senior secured first-lien notes due 2029 (B1/B+) fell after holding at par on the break.

Maxar Technologies Inc.'s 7¾% senior secured notes due 2027 (B2/B) were down 1 point from issue during Friday’s session.

Now what?

A quiet mid-June Friday in high-yield new issues played out against a backdrop of heavy volatility in the global capital markets, as investors eyeballed the biggest jump in the Consumer Price Index in 40 years, and pondered its dire implications for central bank policy going forward.

Against this backdrop forecasts for issuance in the week ahead were not easy to come by.

There is cash to put to work on a calendar, said a trader.

The problem is finding a company that is not susceptible to sticker shock, as the cost of capital climbs for high-yield issuers, the source added.

The composite yield to worst of the Merrill Lynch high yield index was 7.55% at Friday's open. Exactly one year ago, June 10, 2021, it was 3.95%.

There is one deal on the active forward calendar.

Iris Holdings Inc. is on the road with a $400 million offering of 6.5-year senior notes (Caa2/CCC+) backing the buyout of Intertape Polymer Group Inc. by Clearlake Capital Group LP.

Initial guidance has the notes coming with a 10% coupon at an issue price in the low 90s with an all-in yield in the high 11% area to the low 12% area. Pricing is expected on Tuesday.

The Intertape Polymer offer is the first triple-hooks deal (Caa1 or lower on both sides of the split) to hit the high-yield new issue market since Carvana Co. priced $3.275 billion of 10¼% senior notes due May 2030 (Caa2/CCC) on April 27.

Those bonds went out Friday at 83.67, according to a market source.

Univision closes off lows

In the secondary market for recent deals, Univision’s 7 3/8% senior notes due 2030 were able to close Friday above their discounted issue price, although they dipped below in intraday activity.

The 7 3/8% notes traded down to 98¾ in intraday activity although they were lifted off their lows heading into the market close.

The 7 3/8% notes were changing hands in the 99¼ to 99¾ context late in the session with several prints at 99 5/8, a source said.

There was $49 million in reported volume.

In a heavily oversubscribed offering, Univision priced a $500 million issue of 7 3/8% eight-year senior notes (B1/B+) at 99.255 to yield 7½% on Thursday.

The yield printed at the tight end of the 7½% to 7¾% yield talk.

The deal was heard to have played to $2.2 billion in demand.

Below par

Callon’s 7½% senior notes due 2030 and CDK’s 7¼% senior secured first-lien notes due 2029 sank on Friday after both issues traded at or above par on their Thursday break.

Callon’s 7½% notes traded as high as par 1/8 on Friday; however, they succumbed to selling pressure as the session progressed, a source said.

The 7½% notes were changing hands in the 99 to 99¾ context heading into the close.

There was $48 million in reported volume.

The notes were marked at par bid, par ½ offered on the break.

Callon priced a $600 million issue of the 7½% notes at par in a Thursday drive-by.

The yield printed in the middle of yield talk in the 7½% area.

The deal was heard to have played to $1.5 billion in demand.

CDK’s 7¼% senior secured first-lien notes due 2029 traded as low as 98½ on Friday with most trades in the 98½ to 99½ context, a source said.

The notes traded as high as par ½ on the break, a source said.

There was $38 million in reported volume.

The 7¼% notes were the latest leveraged buyout deal to clear the primary.

Issuing entity Central Parent priced a $750 million issue of the 7¼% notes at par on Thursday with proceeds to be used to partially fund Brookfield Business Partners’ buyout of automotive technology company CDK.

The deal priced in the middle of yield talk in the 7¼% area.

Maxar Technologies’ 7¾% senior secured notes due 2027 were down 1 point from issue with the notes changing hands in the 98 7/8 to 99¼ context heading into the close, a source said.

However, volume in the name was thin with $9 million in reported volume during Friday’s session.

Maxar priced a $500 million issue of the 7¾% notes at par on Thursday.

The yield printed in the middle of yield talk in the 7¾% area.

Fund flows

High-yield ETFs sustained $518 million of outflows on Thursday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds were positive on the day, posting $119 million of inflows on Thursday.

News of Thursday's daily fund flows follows a Thursday afternoon report that the combined funds saw $1.34 billion of net inflows in the week to Wednesday's close, according to Refinitiv Lipper.

That followed the previous week's $4.77 billion inflow which represented the asset class's biggest year-to-date weekly inflow, the market source noted.

Indexes

The KDP High Yield Daily index fell 65 points to close Friday at 56.36 with the yield now 6.9%.

The index was down 25 points on Thursday, 22 points on Wednesday, 18 points on Tuesday and 18 points on Monday.

The index sank 148 points on the week.

The ICE BofAML US High Yield index plunged 102 basis points with the year-to-date return now 10.288%.

The index fell 43 bps on Thursday, 19.4 bps on Wednesday, 32.7 bps on Tuesday and 19.6 bps on Monday.

The index posted a cumulative loss of 216.7 bps on the week.

The CDX High Yield 30 index dropped to a 98-handle with the notes down 119 bps to close the day at 98.79.

The index fell 76 bps on Thursday and 26 bps on Wednesday, gained 5 bps on Tuesday and fell 16 bps on Monday.

The index posted a cumulative loss of 232 bps on the week.

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