Junkland: G-III Apparel tanks; CSC under pressure; Mohegan rises; funds out $1.712 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 1 – As the junk bond primary was quiet, the secondary space was in focus and continued to add after surging on Wednesday after Federal Reserve chair Jerome Powell reignited the market’s dovish pivot hopes.

Exchange-traded fund buying continued to lift the space with offers-wanted-in-competition lists outnumbering bids-wanted-in-competition 4 to 1.

Without new paper, topical and earnings-related news were the drivers of trading activity.

G-III Apparel Group Ltd.’s 7 7/8% senior secured notes due 2025 (Ba3/BB) were the name of the day with the notes plummeting to a new all-time low post-earnings.

Altice USA Inc. subsidiary CSC Holdings LLC’s junk bonds were under pressure after the company dropped a planned asset sale.

Mohegan Gaming & Entertainment 8% senior secured notes due 2026 continued to shoot higher after a debt exchange for Mohegan Tribal Gaming Authority’s 7 7/8% senior notes due Oct. 15, 2024.

Meanwhile, high-yield mutual and exchange-traded funds had outflows of $1.712 billion in the week through Wednesday’s close, according to the Refinitiv Lipper US Fund Flows report.

Primary backdrop

Capital markets optimism sparked Wednesday when Fed chairman Jerome Powell telegraphed a more moderate central bank approach to combatting inflation, gave way to renewed pessimism, especially in the stock market, on Thursday, as the November PMI report showed the U.S. economy to be in contraction.

Economic weakness is not necessarily terrible news for the bond market, a sellside source said – because economic weakness reduces upward pressure on rates.

Indeed, the PMI notwithstanding, a trader reported seeing multiple bonds trade 1 point to 2 points higher on Thursday, and added that the high-yield market seems to have room to run, with the dealers possibly sitting on lighter balance sheets, and the accounts tending to be underinvested heading into the end of the year.

However economic weakness augers against a vigorous new issue calendar because it erodes risk sentiment, sources say.

The primary market remained quiet on Thursday, with no junk deals priced and no new deals announced.

The primary market, which has now been idle since Nov. 22, might remain a quiet place in the run-up to 2023, sources say.

G-III tanks

G-III’s 7 7/8% senior secured notes due August 2025 were the name of the day on Thursday with the notes bottoming out following earnings.

The 7 7/8% notes dropped 7 points in heavy volume.

The notes traded to a low of 84¼ and a high of 88 but had settled into the 85 to 85¼ context by the market close, a source said.

The yield jumped to 14 5/8%.

There was $35 million in reported volume.

The notes traded down to 93 heading into earnings but were wrapped around 97 at the start of the week with the yield about 9%.

There was a fire sale in the apparel group’s capital structure after an earnings miss, slashed guidance, and the looming expiration of its licenses for the Calvin Klein and Hilfiger brands.

“That’s not a pretty picture,” a source said.

Altice under pressure

Altice subsidiary CSC Holdings’ junk bonds were under pressure after the company announced it was abandoning an asset sale.

CSC Holdings’ 7½% senior notes due 2028 (B3/B) sank 4 points to close Thursday wrapped around 74½, a source said.

The yield on the notes jumped to 14½%.

There was $12 million in reported volume.

Prior to Thursday’s session, the notes traded on a 78-handle, a source said.

CSC Holdings’ 5¾% notes due 2030 (B3/B) fell 2¼ points to close the day at 66¾ with a yield of 13%.

However, CSC Holdings’ 6½% senior guaranteed notes due 2029 (Ba3/BB) were holding up well.

The 6½% notes were off about ½ point with the notes trading in the 89½ to 90 context heading into the close.

There was $14 million in reported volume.

CSC Holdings was under pressure after parent company Altice announced that it would not sell subsidiary Suddenlink following a strategic review.

The sale could have netted the company $20 billion, a source said.

Mohegan jumps

Mohegan’s 8% senior secured notes due February 2026 continued to shoot higher after the strong gains made the previous session following an exchange for the company’s 7 7/8% senior notes due Oct. 15, 2024.

The 8% notes climbed another 2 points after jumping 4 points the previous session.

They were changing hands in the 94½ to 95 context heading into the market close with the yield about 9 7/8%, a source said.

The notes remained active with $27 million in reported volume heading into the close.

Mohegan’s 8% senior secured notes surged after the gaming company announced an exchange for $475 million of its outstanding 7 7/8% senior notes due 2024.

The 7 7/8% notes will be exchanged for $500 million of 13¼% senior notes due 2027.

The debt exchange was a credit positive for the company and removed some refinancing risks posed by the near-term maturity, a source said.

Indexes

The KDP High Yield Daily index jumped 53 points to close Thursday at 52.75 with the yield 7.12%.

The index was up 23 points on Wednesday after sliding 9 points on Tuesday and 7 points on Monday.

The ICE BofAML US High Yield index jumped 71 basis points with the year-to-date return now negative 9.834%.

The index was up 46.6 bps on Wednesday after falling 14.2 bps on Tuesday and 23.4 bps on Monday.

The CDX High Yield 30 index fell 23 bps to close Thursday at 101.65.

The index gained 100 bps on Wednesday and 17 bps on Tuesday after falling 87.5 bps on Monday.

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