Secondary extends gains; Avient at premium; Community Health plummets; funds add $4.83 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 28 – The high-yield new-issue market was in a celebratory mood on Thursday following the razor-sharp execution seen Wednesday by Avient Corp., which priced a $725 million issue of 7 1/8% senior notes due August 2030 (Ba3/BB-) that saw orders five-times the size of the deal, sources said.

The bonds, which came inside of talk at par on an accelerated timeline, were seen as high as 102 bid, 102½ offered before fading slightly ahead of midday Thursday, a trader said.

Amid the summer travails of the high-yield primary market, the Avient execution illustrates that there is still liquidity in the market for quality names with good credit ratings, sources say.

However in the wake of Wednesday's marquee Avient deal the new issue market remained quiet on Thursday.

There is one deal stationed on the active forward calendar.

Patagonia Holdco LLC was scheduled to wrap up a roadshow for its $500 million offering of seven-year senior secured first lien notes (B1/B+) earlier in the week.

However, it has been radio silence since the beginning of the week on the Patagonia offer, which comes in support of the buyout of Lumen Technologies’ Latin American operations by Stonepeak.

Due to the summer issuance drought high-yield accounts initially took notice of the Patagonia deal, sources say.

However the perception that seems to have evolved in the interim is that the Patagonia deal is to be more of an emerging-markets play, they add.

Meanwhile, the secondary space extended its post-Fed rally on Thursday with ETF buying continuing to lift the overall market.

While interpretations of Federal Reserve chair Jerome Powell’s Wednesday remarks diverge, the buying frenzy in risk assets was sparked by what many considered to be a dovish pivot in the rate hike schedule.

The U.S. GDP’s surprise contraction on Thursday helped fuel the rally with fears of an overly aggressive tightening schedule temporarily assuaged.

While the market opened the day flat, the cash bond market added another 5/8 point by the market close with the ICE BofAML US High Yield index year-to-date returns back on a negative 9% handle.

The sustained rally in the secondary space was fueled by strong inflows with high-yield mutual and exchange-traded funds seeing their largest inflow year-to-date.

Funds added $4.828 billion in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flow report.

The inflow was the largest since June 2 when $4.77 billion entered the space following another Fed-induced rally.

While volume had been thin, there was an uptick of activity on Thursday with new paper in the market and earnings-related volatility sparking activity in outstanding issues.

Avient’s 7 1/8% senior notes due 2030(Ba3/BB-) held onto its strong premium with the notes trading on a 102-handle.

While the overall market was strong on Thursday, CHS/Community Health Systems, Inc.’s capital structure was under pressure with its notes dropping 6 to 13 points.

Avient adds to gain

Avient’s 7 1/8% senior notes due 2030 held onto their premium after a strong break with the notes continuing to trade on a 102-handle.

They were marked at 102 bid, 102½ offered on Thursday, which is roughly where they closed the previous session, sources said.

The deal was brought to market by reverse inquiry and played to heavy demand during bookbuilding with order books heard to be 5x oversubscribed.

While pricing came tighter than talk, the notes still priced cheap compared to the BB index, which has been trading with a yield to worst on a 6% handle, a source said.

Avient price a $725 million issue of the 7 1/8% notes at par on Wednesday.

The yield printed tighter than the 7¼% to 7½% yield talk.

Community Health drops

Community Health’s senior notes were the largest losers of Thursday’s session after claiming the title of largest gainer last Friday.

Optimism about Community Health’s earnings following strong reports from industry peers drove the notes higher last Friday.

However, a large earnings miss sparked a sell-off in the capital structure on Thursday with the hospital chain’s senior notes down 6 to 13 points.

Community Health’s junior priority secured notes were the hardest hit in the sell-off.

The 6 7/8% junior priority secured notes due 2029 (Caa2/CCC) plummeted 13 points.

The notes traded to an all-time low of 47 early in the session. However, they pared their losses as the market gained strength mid-session to close the day at 52.

The notes were yielding north of 20%.

The 6 1/8% junior priority senior secured notes due 2030 (Caa2/CCC) fell 10 points.

They traded as low as 45 early in the session but also regained their footing to close the day on a 54-handle.

Community Health’s 4 ¾% senior secured notes due 2031 (B2/B) were off 6 points with the notes trading in the 77½ to 78 context heading into the market close.

The yield on the notes was 8½%.

The 5¼% senior secured notes due 2030 were down 5½ points to close the day in the 80½ to 81 context with the yield 8 5/8%.

Community Health announced a large earnings miss on Wednesday with adjusted EBITDA $253 million versus analyst expectations for adjusted EBITDA of $413 million.

The hospital chain also released downwardly revised revenue guidance after also cutting guidance in the first quarter.

Indexes

The KDP High Yield Daily index gained 16 points to close Thursday at 56.78 with the yield now 6.69%.

The index rose 17 points on Wednesday, fell 17 points on Tuesday and rose 2 points on Monday.

The ICE BofAML US High Yield index gained 57.3 bps with the year-to-date return now negative 9.612%. The index rose 26.3 bps on Wednesday, fell 31 bps on Tuesday and gained 3.6 bps on Monday.

The CDX High Yield 30 index rose 46 bps to close Thursday at 100.99.

The index gained 90 bps on Wednesday, sank 50 bps on Tuesday and gained 13 bps on Monday.

Fund flows

The dedicated high-yield bond funds saw mixed daily cash flows on Wednesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $364 million of inflows on the day.

It was the sixth consecutive session in which the junk ETFs posted strong positive flows.

Meanwhile actively managed high-yield funds saw $260 million of outflows on Wednesday, the source said.

News of Wednesday's daily flows was followed by a Thursday afternoon report that the combined high-yield funds saw a whopping $4.83 billion of net inflows for the week to Wednesday's close, according to fund tracker Refinitiv Lipper.

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