Junk secondary ‘deflates’; Allegiant gives back gains; Six Flags under pressure

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 11 – The primary junk bond market was quiet on Thursday, but market participants are expecting at least some activity before the Labor Day holiday, a time when debt issuance is often subdued.

Meanwhile, the secondary space was volatile on Thursday with the market’s strong open giving way to selling pressure as the session progressed.

“It deflated,” a source said.

While the market was up 1/8 to ¼ point early in the session, it closed the day flat to down 1/8, sources said.

However, volumes remained thin amid the volatility with new paper and earnings-related news the drivers of activity in the space.

Allegiant Travel Co.’s new 7¼% senior secured first-lien notes due 2027 (Ba3/BB-/BB+) gave back much of their gains after a strong break the previous session.

While the notes closed Thursday well off the high of the day, they were holding above their discounted issue price.

Charter Communications, Inc. subsidiary CCO Holdings, LLC’s recently priced 6 3/8% senior notes due 2029 (B1/BB-) remained active with the notes remaining above par despite the market’s weak close.

Outside of recent issues, Six Flags Entertainment Corp.’s 5½% senior notes due April 2027 (B3/B-) were under pressure following disappointing earnings, a source said.

Meanwhile, high-yield mutual and exchange-traded funds had their third consecutive week of inflows although the amount decreased substantially.

Funds added $27 million in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flow report.

High-yield mutual and exchange traded funds added $2.934 billion the week ending Aug. 3 and $4.83 billion, the largest inflow of 2022, the week ending July 28.

Primary: risk appetite

The primary market remained quiet on Thursday, and is expected to remain generally quiet during the runup to Labor Day, sources say.

However, there will likely be activity in the week ahead, according to a portfolio manager who noted that the month of August has seen a substantial change in risk appetite among investors.

Three to four weeks ago you could only sell double-B rated deals, the investor said.

Now you can't sell double-B rated deals because people are once again on the lookout for yield that is more characteristic of bonds with a single-B credit profile.

Cash has been coming in, said the investor.

The return on the high-yield index has improved 1.25% since the beginning of August.

“Right now, if you don't have some exposure to risk you're scrambling to get it,” the source said.

Allegiant gives back gains

Allegiant’s new 7¼% senior secured first-lien notes due 2027 gave back much of their gains following a strong break the previous session as the market’s rally deflated midsession.

However, the notes maintained a slight premium, closing the day above their discounted issue price.

The 7¼% senior notes opened Thursday on a 101-handle.

The notes were marked at 101 bid, 101½ offered early in the session and traded as high as 101 5/8, sources said.

However, the notes came in alongside the broader market as selling pressure once again reared its head.

The 7¼% notes fell to par and were changing hands in the 99 7/8 to par 1/8 context heading into the close.

“They were all over the place,” a source said.

The notes were the most actively traded issue in the secondary space with $57 million in reported volume.

Allegiant priced an upsized $550 million, from $500 million, issue of the 7¼% notes at 99.486 for a yield of 7 3/8% in a Wednesday drive-by.

The yield printed toward the rich end of talk for a yield in the 7½% area. Initial guidance was in the 7¾% area.

The deal was heard to be 4.5x oversubscribed and came to the market on the back of $750 million of reverse inquiry, a source said.

Charter holds

Charter’s 6 3/8% senior notes due 2029 were able to hold above par on Thursday even as weakness returned to the market.

The 6 3/8% notes opened Thursday up ¼ point and were changing hands in the par 3/8 to par ¾ context.

However, they lost steam as the session progressed and closed Thursday flat in the par to par ¼ context.

The notes remained active with $20 million in reported volume.

Charter’s notes have wavered between small gains and losses since the $1.5 billion issue priced at par on Aug. 4.

Six Flags under pressure

Six Flags’ 5½% senior notes due 2027 were under pressure on Thursday following disappointing earnings.

The 5½% notes traded in a wide range amid Thursday’s volatility.

While the majority of trades were on a 97- to 96-handle, the notes sank at the close to end the day at 95½, a decrease of 2½ points, a source said.

The notes saw heavy volume on Thursday with $15 million in reported volume.

The amusement park operator was under pressure after reporting a large revenue miss due to declining attendance.

Revenue was $435 million versus analyst expectations for revenue of $518.5 million.

Indexes

The KDP High Yield Daily index gained 7 points to close Thursday at 57.62 with the yield 6.37%.

The index was up 42 points on Wednesday, fell 18 points on Tuesday and gained 18 points on Monday.

The ICE BofAML US High Yield index gained 28.9 bps with the year-to-date return now negative 7.457%.

The index gained 60.7 bps on Wednesday, fell 31.7 bps on Tuesday and gained 35.2 bps on Monday.

The CDX High Yield 30 index was down 16 bps to close Thursday at 102.32.

The index jumped 151 bps on Wednesday, fell 61 bps on Tuesday and gained 16 bps on Monday.

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