Ford reopens junk primary, notes flat on break; Tenneco on tap; secondary awaits Fed day

By Abigail W. Adams

Portland, Me., Nov. 1 – The domestic high-yield primary market returned to action on Tuesday after nearly two weeks of no issuance.

Ford Motor Credit Co. LLC priced $1.5 billion of five-year senior notes (Ba2/BB+/BB+) in a Tuesday drive-by.

The offering priced tight with the market starved for new issuance, sources said.

However, the new paper saw a lackluster start in the secondary space and was wrapped around the issue price after breaking for trade.

Meanwhile, early whispers surfaced for Pegasus Merger Co.’s $1 billion offering of six-year senior secured notes backing Apollo’s buyout of Tenneco Inc.

Quietly, the deal was heard for a yield 200 basis points wider than whispers from when the deal was pre-marketed in July.

The reemergence of the offering is a positive sign for the market, a source said.

However, the deal size was dramatically reduced with a large portion of the debt backing Tenneco’s acquisition not going to be syndicated.

Meanwhile, the secondary space was volatile on the eve of rate day.

The market widely expects the Federal Reserve Open Market Committee to announce another 75 bps rate increase Wednesday afternoon.

However, bets are still out on the path going forward.

The recent strength in risk assets has been fueled by renewed hope that the Federal Reserve’s dovish pivot is soon at hand.

However, economic data continues to come in mixed.

The secondary space saw a firm start to the day with the cash bond market up ¼ point at the open.

Then the JOLTS, or Job Openings and Labor Turnover Survey, report came out with numbers that were stronger than expected.

“After that we were down all day,” a source said.

The cash bond market closed down 1/8 point.

However, the secondary space was quiet with the market in “a holding pattern,” ahead of the Fed decision, a source said.

Ford prices tight

Ford reopened a primary market that had been shuttered for nearly two weeks with a $1.5 billion issue of five-year senior notes that priced at par to yield 7.35%.

Pricing came at the tight end of initial talk for a yield in the 7 5/8% area.

The deal priced on the screws, a source said; however, the market has been starved for new issuance and Ford is a solid credit.

Five-year paper from a solid credit on a 7-handle made the deal attractive to some.

However, others were not enticed by the offering with cheaper paper from investment-grade automakers available, a source said.

While the deal did not struggle to pass the finish line in the primary market, the 7.35% notes had a lackluster start in the secondary space.

The notes initially fell below par to trade as low as 99¾.

However, they popped back up and were wrapped around par heading into the close.

The notes priced slightly wide of the BB index which currently yields 7¼%.

Its secondary market performance will largely depend on future market moves.

“This is another one that’s going to be tied to how the wind blows,” a source said.

Tenneco’s whisper

Pegasus Merger’s $1 billion offering of six-year senior secured notes were whispered to be coming with a coupon of 8% and an OID for an all-in yield of 12%, according to market sources.

The deal, which has been on hold since July, is coming with a significantly reduced size and a yield 200 bps wider than when it was first pre-marketed.

In July, the leveraged-buyout deal backing Apollo’s acquisition of Tenneco was pre-marketed as a two- tranche offering composed of a $2 billion tranche of secured notes whispered with an all-in yield of 10% and $1 billion tranche of unsecured notes.

However, a large portion of the debt backing the $7.1 billion acquisition will not be syndicated, a source said.

An unsecured tranche would not make sense in the current market environment with the yield most likely having to price north of 15%, a source said.

Indexes

The KDP High Yield Daily index slid 3 points to close Tuesday at 51.47 with the yield 7.68%.

The index fell 12 points on Monday.

The ICE BofAML US High Yield index gained 1.9 bps with the year-to-date return now negative 12.169%.

The index was down 36 bps on Monday.

The CDX High Yield 30 index gained 42 bps to close Tuesday at 99.63.

The market fell 72 bps on Monday.

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