Junk reverses course, gains on Friday; DISH pares losses in volatile week; DirecTV lower

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 6 – The junk bond new issue market remained idle, as expected, ahead of the extended Columbus Day holiday weekend which got underway following Friday’s close.

The active new issue calendar stood empty heading into the long weekend.

There is likely to be a modicum of new issue activity in the holiday-abbreviated week ahead, a high-yield syndicate banker said, but added that with risk-free rates on the march the primary market may face a chilly autumn.

Meanwhile, it was a topsy-turvy day in the secondary space following the release of the U.S. non-farms payroll report which reflected stronger job growth than anticipated.

While the market sold off early as Treasury yields shot to fresh heights, buyers emerged midsession and lifted the market into the close.

The CDX index went from a ½ point loss to a ½ point gain by the close.

“This market has no idea what it’s doing,” a source said.

While talking heads used the goldilocks scenario of strong job growth and disinflation to explain the midsession reversal, sources felt the buying surge was more the result of selling fatigue.

“They’re just looking for a rosy scenario and tired of selling,” a source said.

While there continued to be opportunistic buying in the space, there were no aggressive bids and selling continued on certain credits.

With refinancing and recession risks once again front and center in the market, market players were shunning CCC credits and highly leveraged companies and focusing on quality.

With the primary market dormant amid the repricing in the market, large, liquid issues and topical news were the drivers of volume in the space.

DISH DBS Corp.’s 7¾% senior notes due 2026 (Caa2/B-) continued to pare losses on the week in heavy volume as DirecTV Holdings LLC and DirecTV Financing Co. Inc.’s 5 7/8% senior secured notes due 2027 (Ba3/BB) moved lower.

News that AT&T was considering options for its 70% stake in DirecTV sparked renewed interest in DISH with renewed speculation of a merger between the two entities.

GTCR W-2 Merger Sub LLC’s 7½% senior secured notes due 2031 (Ba3/BB/BBB-) backing the buyout of Worldpay remained active on Friday although the notes largely leveled off.

DISH, DirecTV

DISH’s 7¾% senior notes due 2026 was still among the most actively traded issues in the secondary space on Friday with the notes continuing to pare losses after heavy selling earlier in the week.

The 7¾% notes gained another 1 point to close the day in the 70¾ to 71¼ context, a source said.

The yield was about 22 5/8%.

There was $20 million in reported volume.

The notes were trading on a 77-handle in mid-September but fell to a 75-handle as the market priced in a higher-for-longer rate environment.

After DISH announced an amended merger agreement with EchoStar with EchoStar to become the parent company, DISH paper “dropped like a rock,” a source said.

The 7¾% notes sank to a 69-handle amid heavy selling in the capital structure earlier in the week but have been lifted by buying interest over the past two sessions.

News that AT&T was considering options for its 70% stake in DirecTV may have sparked the interest amid renewed speculation about a merger between DISH and DirecTV.

DirecTV’s 5 7/8% senior secured notes due 2027 continued to drift lower in active trade on Friday.

The 5 7/8% notes fell another 1½ points with the notes trading in the 85½ to 86½ context heading into the market close, according to a market source.

The yield was about 10 3/8%.

There was $10 million in reported volume.

The notes have fallen about 2 points over the past two sessions since the media reports circulated about AT&T exploring a sale of its stake.

AT&T will have the ability to sell its stake in the company after July 31, 2024.

Worldpay active, unchanged

Worldpay’s 7½% senior secured notes due 2031 were active on Friday although little changed with the notes leveling off.

The 7½% notes remained wrapped around 99 in active trade.

There was $16 million in reported volume.

The notes have pared their losses from heavy selling earlier in the week when they dropped to a 98-handle.

However, they appeared to have found their level and have been wrapped at 99 over the previous three sessions.

The $2.18 billion issue, which priced at par on Sept. 20, is highly liquid, a source said.

Fund flows

High-yield ETFs sustained $1.52 billion of daily cash outflows on Thursday, according to a market source.

Those follow the $1.34 billion of outflows that the ETFs posted on Wednesday (of note, $1.1 billion of those Wednesday ETF outflows will figure into the weekly fund flows numbers to be reported on Oct. 12.).

Actively managed high-yield funds posted positive numbers on Thursday, reporting $63 million of inflows on the day.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds sustained $2.6 billion of net outflows during the week to the Wednesday, Oct. 4 close.

Those follow the previous week’s $2.4 billion outflow, the source recounted, adding that that the two weeks combined comprise the biggest back-to-back outflows from the junk bond funds since the week ending Feb. 22.

Indexes

The KDP High Yield Daily index shaved off 2 basis points to close Friday at 48.85 with the yield 8.21%.

The index inched up 3 bps on Thursday after falling 2 bps on Wednesday, 42 bps on Tuesday and 27 bps on Monday.

The index was down 70 bps on the week.

The CDX High Yield 30 index added 50 bps to close Friday at 100.3.

The index fell 20 bps on Thursday, added 23 bps on Wednesday and fell 77 bps on Tuesday and 24 bps on Monday.

The index was down 48 bps on the week.

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