Junkland clears another drive-by; DCP in focus, jumps on buyout; Ford improves

Chicago, Aug. 18 – Mid-August issuance represents the most active week in the junk bond primary market in approximately three months.

While the coast was clear, bookrunners moved one more issuer with a drive-by deal through pricing, resulting in an upsized add-on transaction that priced at the rich end of talk and notched higher on the break.

Meanwhile, it was an uneventful day in the secondary space with the cash bond market unchanged and trading volume thin as activity in recent issues fades.

DCP Midstream, LP was the name of the day on Thursday with its senior notes soaring after Phillips 66 announced a non-binding proposal to acquire all outstanding units of DCP for cash.

Ford Motor Co.’s 6.1% senior green notes due 2032 (Ba2/BB+) improved in heavy volume on Thursday although the notes remained on a par handle.

Royal Caribbean Group’s recently priced 11 5/8% senior notes due 2027 (B3/B) also remained active although with little movement in price.

Meanwhile, high-yield mutual and exchange-traded funds had their fourth consecutive week of inflows with $1.464 billion entering the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flows report.

Drive-by add-on

Univision Communications Inc. came in a Thursday drive-by, pricing an upsized $400 million add-on (from $300 million) to its 7 3/8% senior secured notes due June 30, 2030 (B1/B+) at 101.5, resulting in a 7% yield to worst.

The session's sole new issue, it came at the rich end of price talk, and traded sharply higher in the secondary market where it was 102 bid, 102¾ offered at the Thursday close, a sellside source said.

Univision left in its wake an empty active forward calendar.

There is visibility on one offering of substantial size, a $1 billion offering from a company in the high-yield energy sector that would represent the left bookrunner debut of deal-runner B. Riley Financial, Inc., according to market sources.

That deal, which began being telegraphed to the market last week, is expected to be announced during the week ahead.

DCP in focus

DCP’s capital structure made large gains following news that Phillips 66 had proposed to buy out the midstream company’s publicly traded units and merge it with a Phillips 66 subsidiary.

DCP’s lower dollar price bonds made the largest gains on the news.

DCP’s 5.6% senior notes due 2044 (Ba1/BB+) skyrocketed 10½ points on the news.

The 5.6% notes were changing hands in the 101¼ to 101½ context heading into the market close.

There was $14 million in reported volume.

The notes were changing hands in the 90 to 91 range heading into Thursday’s session.

DCP’s 5 1/8% senior notes due 2029 jumped 3½ points to close Thursday wrapped around 101.

There was $13 million in reported volume.

Phillips’ acquisition of DCP’s outstanding units may trigger the 101 poison put clause in the notes’ indenture, a source said.

The acquisition would be an enormous boon to DCP’s credit with Phillips 66 an A3/BBB+ rated company.

Phillips announced Thursday that it had submitted a non-binding proposal to DCP’s board of directors offering to acquire all public units of DCP for $34.75 a unit.

The transaction would be structured as a merger of DCP with an indirect subsidiary of Phillips 66 with DCP the surviving entity.

Ford gains

Ford’s 6.1% senior green notes due 2032 gained strength in heavy volume on Thursday although the notes remained on a par handle.

The 6.1% notes gained ¼ point to change hands in the par 5/8 to par 7/8 context heading into the market close, according to a market source.

They were wrapped around par ¾ heading into the market close.

There was $87 million in reported volume.

The notes improved alongside the broader market on Thursday after spending the majority of Wednesday’s session at par.

Ford priced a $1.75 billion issue of the 6.1% notes at par on Tuesday.

Royal Caribbean active

Royal Caribbean’s recently priced 11 5/8% senior notes due 2027 remained active on Thursday although with little movement in price.

The 11 5/8% notes remained on a 101-handle.

They were changing hands in the 101 3/8 to 101 5/8 context throughout the session with the yield about 11 1/8%, a source said.

Royal Caribbean’s 11 5/8% notes have performed well since the $1.25 billion issue priced at par on Aug. 15 with the notes leveling off on a 101-handle.

Some sources remain wary about Royal Caribbean and other cruise line operators given the uncertainty in the economy.

However, the chunky yield on the 2027 notes makes them worth the risk, a source said.

$672 million outflows

High-yield ETFs sustained $672 million of daily cash outflows on Wednesday, the most recent session for which data was available at press time, according to a market source.

It was the second consecutive sizable outflow from the ETFs, which had $497 million of outflows on Tuesday.

The junk ETFs posted strong positive flows totaling $1.18 billion in the first three sessions of the present reporting week which concluded with Wednesday's close.

Meanwhile actively managed high-yield funds saw $130 million of inflows on Wednesday.

News of Wednesday's daily flows was followed by a Thursday afternoon report that the combined funds saw $1.46 billion of net inflows in the week to Wednesday's close.

Indexes

The KDP High Yield Daily index shaved off 3 points to close Thursday at 57.23 with the yield now 6.49%.

The index fell 36 points on Wednesday and 9 points on Tuesday after gaining 3 points on Monday.

The ICE BofAML US High Yield index inched up 7.5 basis points with the year-to-date return now negative 8.096%.

The index fell 51.9 bps on Wednesday and 15.8 bps on Tuesday after gaining 18.3 bps on Monday.

The CDX High Yield 30 index gained 11 bps to close Thursday at 102.05.

The index fell 63 bps on Wednesday, 47 bps on Tuesday and 9 bps on Monday.

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