Junk market returns gains; Maxar skyrockets on acquisition; First Quantum lower on closure

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 16 – There was no news in the junk bond primary market on Friday, with sources continuing to profess the belief that new issuance for 2022 has run its course.

However, the primary market could reopen in the week ahead, a syndicate banker said – perhaps to accommodate a one-off transaction such as an add-on deal supported by strong reverse inquiry.

Meanwhile, the secondary space continued to give back gains on Friday with the cash bond market off another ¼ to 3/8 point, sources said.

The market was able to eke out a weekly gain; however, the softer-than-expected Consumer Price Index report that drove the market surge on Tuesday was quickly overshadowed by the Federal Reserve’s Wednesday announcement, sources said.

The market was once again grappling with recession fears after a dramatic reduction to the Federal Reserve’s GDP forecast and a dot plot plan which leaves the Federal Fund target rate on a 5% handle for the duration of 2023.

While the market closed Friday on weak footing, activity in the space continued to diminish as 2022 draws to a close.

Topical news was the main driver of activity.

First Quantum Minerals Ltd.’s junk bonds (B+) were under pressure after Panama closed the company’s flagship mine.

Maxar Technologies Inc.’s 7¾% senior secured notes due 2027 (B2/B+) skyrocketed following news of its $6.4 billion acquisition by private-equity firm Advent International.

First Quantum under pressure

First Quantum Mineral’s capital structure was under pressure on Friday with its junk bonds falling 1 to 3 points in heavy volume.

First Quantum’s 6 7/8% senior notes due 2027 were the most actively traded tranche in the capital structure and the most active issue in the secondary space.

The notes fell 1½ points to close Friday at 92 3/8 with the yield now 8 7/8%, according to a market source.

There was $44 million in reported volume.

The 6 7/8% senior notes due 2026 saw the largest drop in price with the notes falling 2½ to 3 points.

The notes closed Friday at 93¾ with the yield now 9 1/8%, according to a market source.

There was $21 million in reported volume.

First Quantum’s 6½% senior notes due 2024 were off 1 3/8 points to close at 97½ with the yield 8¾%.

There was $13 million in reported volume.

The mining company was under pressure after Panama ordered the company to close its flagship copper mine.

Panama and First Quantum were negotiating a new contract related to the mine but failed to agree on terms.

Maxar Technologies

Maxar Technologies’ 7¾% senior secured notes due 2027 were the winners of Friday’s session with the notes skyrocketing following news of the company’s acquisition.

The notes jumped 5 points outright.

They were changing hands in the 103¾ to 104¼ context heading into the market close, according to a market source.

The notes were wrapped around 99 heading into Friday’s session.

Maxar’s 7¾% notes became the latest to surge following merger and acquisition activity.

News broke Friday that private-equity firm Advent Capital will acquire the space technology company for $53 a share; the total enterprise value of the deal is $6.4 billion.

While a boost to the notes, the closing of the acquisition is uncertain with the deal subject to a 60-day “go shop” period where the company can solicit bids from other suiters, sources said.

Outflows

The dedicated high-yield bond funds sustained a very hefty $965 million amount of net daily cash outflows on Thursday, according to a market source.

High-yield ETFs saw $825 million of outflows on the day.

Actively managed high-yield funds saw $160 million of outflows on Thursday, the source said.

News of Thursday's daily flows follows a Thursday report that the combined funds sustained $313 million of net outflows during the week that ended with the Wednesday, Dec. 14 close, according to Refinitiv Lipper.

The combined funds finished the most recent week with $43.6 billion of net outflows for the year, the market source said.

Indexes

The KDP High Yield Daily index fell 12 points to close Friday at 52.62 with the yield 7.16%.

The index fell 22 points on Thursday after gaining 4 points on Wednesday, 42 points on Tuesday and 6 points on Monday.

The index posted a cumulative gain of 18 points on the week.

The CDX High Yield 30 index fell 59 basis points to close Friday at 100.43.

The index was down 92 bps on Thursday and 2 bps on Wednesday after gaining 99 bps on Tuesday and 18 bps on Monday.

The index posted a cumulative loss of 36 bps on the week.

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