TransDigm prices add-on; DISH improves post-earnings; junk funds lose $6.125 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 23 – On the heels of eight consecutive dormant sessions the dollar-denominated high-yield bond new issue market sprang to life on Thursday.

TransDigm, Inc., appearing for the second time since the beginning of 2023, priced a $1.1 billion add-on to its 6¾% senior secured notes due Aug. 15, 2028 (Ba3/B+) at a discount.

Meanwhile, the secondary space continued to improve on Thursday as the market dialed back expectations for a more aggressive Federal Reserve after a weak GDP print.

The cash bond market added ½ point following the strong gains of the previous session with buyers again returning to the space.

The Federal Open Market Committee meeting notes released on Wednesday and the slate of macro data released on Thursday alleviated some of the interest rate concerns that have driven the market down more than 3 points over the past three weeks.

TransDigm’s 6¾% senior secured notes due 2028 dominated activity in the secondary space with the notes unchanged by the add-on.

DISH Network Corp.’s 11¾% senior secured notes due 2027 (Ba3/B+) pared some losses from the week with the notes lifted post-earnings.

Several recent deals that took a beating amid the downturn in the market over the past month also cut their losses.

Ford Motor Credit Co. LLC’s 7.35% senior notes due 2030 (Ba2/BB+) jumped back to a 101-handle after breaking below par on Tuesday.

Charter Communications, Inc. subsidiaries CCO Holdings, LLC and CCO Holdings Capital Corp.’s 7 3/8% senior notes due 2031 (B1/BB-) eliminated their losses on the week with the notes up almost 1 point in heavy volume.

Meanwhile, high-yield mutual and exchange-traded funds had one of the largest outflows in the history of the market over the past week.

Funds had $6.125 billion leave the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flows Report.

It is the third largest weekly outflow on record, sources said.

TransDigm’s add-on

TransDigm priced a $1.1 billion add-on to its 6¾% senior secured notes due Aug. 15, 2028 (Ba3/B+) at 99 to yield 6.976% in a drive-by.

The issue price came on top of price talk, and rich to early guidance in the 98 to 98.5 area.

Following the release of final price talk TransDigm's add-on deal was playing to $3 billion of orders, according to a sellside source.

The add-on notes were trading at 99 3/8 bid, 99 7/8 offered, versus the 99 issue price, late Thursday afternoon, the source added.

The existing notes were largely unchanged by the offering with the notes trading in the 99½ to par context heading into the session.

The 6¾% notes have largely traded in the par 3/8 to par 5/8 context since initially pricing at par.

However, the notes slid below par to their current trading level amid the heaviness in the market on Tuesday.

TransDigm's original $1 billion issue of 6¾% notes priced at par on Feb. 10; the original notes are set to settle on Friday. The originals and the add-on notes will become fungible.

The company, which is terming out its 8% senior secured notes due December 2025 with the proceeds from Thursday's tap, paid a slight concession to the market, and perhaps to its reappearance after having priced $1 billion less than two weeks ago, a debt capital markets banker said.

There was no other news in the dollar-denominated primary market out Thursday, a source said.

In the wake of the TransDigm deal the active forward calendar stood empty, and the shadow calendar of deals that might appear, given the right market conditions, is by no means robust, sources say.

DISH’s earnings

DISH’s 11¾% senior secured notes due 2027 pared their losses from the week on Thursday with the credit lifted following earnings.

The 11¾% notes rose ½ point to trade in the 102¾ to 103¼ context heading into the market close, a source said.

The notes recovered some of their losses from the week with the notes sliding 1 point to a 102-handle amid the heaviness in the market on Tuesday.

The notes were trading in the 103½ to 103¾ context last Friday.

DISH’s earnings bested analyst expectations with EBITDA coming in above forecasts, according to a market source.

Ford reclaims 101-handle

Ford’s 7.35% senior notes due 2030 reclaimed a 101-handle on Thursday after dipping below par during the heaviness in the market at the beginning of the week.

The 7.35% notes were up 5/8 to 1 point with the notes trading in the 101¼ to 101¾ context heading into the close.

The notes recovered from their losses and stood poised to close the week with a gain after dropping below par on Tuesday.

The notes were down more than 1½ points on Tuesday to trade in the 99½ to par context.

They closed the previous week in the 101 to 101 3/8 context, a source said.

The notes are rate-sensitive and were pressured by rising Treasury yields.

CCO eliminates losses

Charter subsidiary CCO Holdings’ 7 3/8% senior notes due 2031 eliminated their losses on the week on Thursday although the notes remained well below par.

The notes gained ¾ point to again flirt with a 98-handle, a source said.

They were changing hands in the 97¾ to 98¼ context heading into the end of the trading day.

The notes traded to an all-time low of 96¾ the previous session.

They closed the previous week in the 97½ to 98 context.

CCO’s 7 3/8% notes have struggled since the $1.1 billion issue priced at par on Jan. 30.

While they briefly traded up to 102 in early February, the 7 3/8% notes have spent the majority of their time in the secondary space below par.

Outflows

Heading into late February the high-yield bond asset class has been undergoing cash outflows of historic proportions, sources say.

The dedicated high-yield bond funds sustained big net daily cash outflows of $1.423 billion on Wednesday, according to a market source.

Actively managed high-yield funds saw $1.02 billion of outflows on the day, the source said, adding that those outflows were reasonably broad-based, and were the largest daily outflows sustained by the actively managed funds since August.

High-yield ETFs sustained $403 million of daily outflows on Wednesday, the source said.

Those outflows from the ETFs follow outflows of $1.2 billion on Tuesday, $1 billion last Friday and $2.29 billion last Thursday, Feb. 16.

On the heels of Wednesday's daily fund flow numbers the market heard that the combined funds sustained a massive $6.125 billion of net outflows during the week to Wednesday's close, according to fund tracker Refinitiv Lipper.

That's the third largest weekly outflow on record, a bond trader said, late Thursday.

Indexes

The KDP High Yield Daily index added 29 points to close Thursday at 51.99 with the yield 7.43%.

The index was down 2 points on Wednesday and 36 points on Tuesday.

The ICE BofAML US High Yield index rose 56.9 basis points with the year-to-date return now 2.292%.

The index gained 32.2 bps on Wednesday after falling 79.5 bps on Tuesday.

The CDX High Yield 30 index gained 37 bps to close Thursday at 101.8.

The index was up 20 bps on Wednesday after falling 87 bps on Tuesday.

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