High-yield primary quiet; secondary tone firms; DaVita falls; Power Solutions active

By Abigail W. Adams

Portland, Me., June 21 – It was another quiet day for the high-yield primary market with no issuers stepping forward despite a firmer tone in the secondary space.

Sources had expected to see some primary market activity given the strength of risk assets on Tuesday.

However, the cost of financing remains a deterrent for potential issuers some of whom are starting to inquire about equity-linked financing as a lower cost alternative, sources said.

Meanwhile, the secondary space firmed on Tuesday as the market continues to digest the events of the previous week.

The cash bond market gained ¼ point although volume remained light, sources said.

The secondary space continued to be driven by macro concerns with the Federal Reserve signaling it was willing to risk a recession to tame inflation.

Average credit spreads during a recession have been 700 bps to 800 bps leaving “a big gap down to go,” a source said.

The ICE BofAML US High Yield index’s spread to worst at Tuesday’s close was 513 bps.

However, it will take a real primary market calendar to spark a repricing of the secondary, a source said.

With the forward calendar empty heading into Wednesday’s session, topical news and repositioning were the driving forces of trading activity in the secondary space.

While the overall market was firm, DaVita Inc.’s 4 5/8% senior notes due 2030 (Ba3/B+) led losses in high volume activity with a recent Supreme Court decision pressuring dialysis providers.

Power Solutions’ (Panther FB Aggregator 2 LP) 8½% senior notes due 2027 (Caa1/CCC+) continued to see heavy volume with the notes reclaiming some lost ground from the previous week.

Post Holdings, Inc.’s 4½% senior notes due 2031 (B2/B+) also regained its footing on Tuesday after hitting an all-time low in the previous week’s sell-off.

DaVita leads losses

While the secondary space was firm on Tuesday, DaVita’s 4 5/8% senior notes due 2030 saw outsized losses.

The 4 5/8% senior notes fell 4 points.

They were changing hands in the 75 to 75½ context heading into the market close with the yield about 9%, according to a market source.

The notes were the most actively traded in the secondary space with $25 million in reported volume.

DaVita’s capital structure was under pressure on Tuesday following a Supreme Court ruling, which was seen as a negative for kidney dialysis providers.

The ruling in favor of the Marietta Memorial Hospital and its employee health plan opens the door for more health plans to remove dialysis from their coverage, which will hurt the operating margins of dialysis providers such as DaVita, a source said.

Power Solutions active

Power Solutions’ 8½% senior notes due 2027 regained their footing in active trading on Tuesday.

The notes were up about 1 point.

They were changing hands in the 96¼ to 96½ context throughout the session, a source said.

The notes carry a yield of about 9.4%.

There was $19 million in reported volume.

The notes have been channeling between a 95- and a 96-handle for the last two weeks.

However, they were above par heading into June.

The 8½% notes sank to a 93-handle as CCC credits came under fire in early May.

However, they wiped out the month’s losses and jumped back to par in the late May rally.

While the company is on the lower credit rating tier, the automotive battery manufacturer is a leading supplier to electric vehicles, a source said.

Post gains

Post’s 4½% senior notes due 2031 were also on the rise in active trading.

The 4½% notes gained 1¼ points with the notes climbing to an 82-handle.

They were changing hands in the 82 3/8 to 82 7/8 context heading into the market close, according to a market source.

The yield on the notes was about 7%.

There was $10 million in reported volume.

While less active, the cereal, food and nutrition company’s 5½% senior notes due 2029 gained about ½ point to trade up to 90 with a yield of 7¼%.

Investors have sought out single-B credits with strong fundamentals in the recent downturns, sources said.

Indexes

The ICE BofAML US High Yield index rose 29 basis points with the year-to-date return now negative 12.627%.

The index posted a cumulative loss of 264 bps on the week last week.

The CDX High Yield 30 index rose 48 bps to close Tuesday at 97.54.

The index posted a cumulative loss of 175 bps on the week.

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