Junk prices $2.1 billion, eyes busy December; Fortress lags; Gap gains; Acute Care tumbles

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 17 – An active Friday session in the junk bond market had three issuers price single dollar-denominated tranches for a combined total of $2.1 billion.

Two of the three tranches came upsized.

Executions were sharp, with two deals coming at the tight ends of talk while the third came in the middle of talk.

All three deals were in the market at least overnight.

Friday’s action took the weekly issuance total to $6.38 billion, a hefty $2.28 billion below the previous week’s $8.66 billion.

The holiday-abbreviated week ahead is apt to have limited new issue activity, according to a debt capital markets banker who added that it is possible the pre-Thanksgiving week could put up no issuance whatsoever.

However, the runup to year-end promises to be quite active, the banker said, adding that the 20 remaining November and December market sessions, following the conclusion of the Thanksgiving week, could see $10 billion of issuance.

Meanwhile, the secondary space was firm on Friday with the cash bond market adding 1/8 point.

While the market has taken a breather since surging over 1 point in the wake of the Consumer Price Index report, it has held on to the majority of the gains made during Tuesday’s session.

While the dramatic rate move since the release of the CPI report has driven issuers to the market, the new paper to price amid tightening spreads have had lackluster performances in the secondary space with several issues sinking below their issue prices.

Fortress Transportation and Infrastructure Investors LLC’s 7 7/8% senior notes due 2030 (Ba2/B+/BB-) briefly traded with a premium during Friday’s session.

However, they lost steam as the session progressed and closed the day below their discounted issue price.

While new paper continued to drive activity in the market, it was earnings-related news that sparked the largest price movements.

Gap Inc.’s 3 5/8% notes due 2029 (B1/BB) made large gains in heavy volume after a large earnings beat.

However, heavy selling in US Acute Care Solutions, LLC’s 6 3/8% senior secured notes due 2026 (B2/B-) continued with the notes dropping more than 10 points since reporting earnings earlier in the week.

Fortress lags

Fortress Transportation’s 7 7/8% senior notes due 2030 became the latest issue to put in a lackluster performance in the secondary market with the notes closing the session below their discounted issue price.

The 7 7/8% notes were trading with a premium in intraday activity.

They hit as high as 99¾ but lost steam and were trading in the 99 to 99¼ context heading into the market close.

There was $58 million in reported volume.

Fortress Transportation priced a $500 million issue of the 7 7/8% notes at 99.333 to yield 8% in a Thursday drive-by.

The yield came in the middle of yield talk in the 8% area.

Gap gains

Gap’s 3 5/8% notes due 2029 (B1/BB) made large gains in heavy volume on the heels of a large earnings beat.

The 3 5/8% notes added 2 points to climb to a 79-handle

They were trading in the 79¼ to 79¾ context heading into the market close, according to a market source.

The yield was about 8%.

There was $21 million in reported volume.

The notes jumped after a large earnings beat, which was a surprise given the weakness in the retail sector, a source said.

Gap reported revenue of $3.77 billion versus the $3.61 billion expected.

The retailer doubled its year-over-year cash balance ending the quarter with $1.4 billion on the balance sheet, Prospect News reported. (See related article in this issue)

US Acute Care tumbles

Heavy selling continued in US Acute Care’s 6 3/8% senior secured notes due 2026 on Friday with the notes down more than 10 points since reporting earnings earlier in the week.

The 6 3/8% notes sank another 4 points in active trade during Friday’s session.

They fell to a 75-handle and stood poised to close the day at 75½ with the yield 20 3/8%, a source said.

There was $12 million in reported volume.

The notes dropped about 6 points the previous session.

They were trading in the 85 to 87 context prior to reporting earnings on Tuesday, a source said.

The notes are an illiquid issue, which is partly why they fell so hard so fast, the source said.

Fund flows

High-yield ETFs had $94 million of daily cash inflows on Thursday, according to a market source.

Actively managed high-yield funds had flat to slightly negative flows on the day, sustaining $3 million of inflows on Thursday, the source said.

News of Thursday’s daily flows follows a Thursday afternoon report that the combined funds had a huge $4.5 billion of net inflows in the week that concluded with the Wednesday, Nov. 15 close.

It follows the previous week’s $6.2 billion of inflows, the fourth largest on record, according to the source.

Year-to-date cash flows of the combined high-yield funds stands at negative-$12.7 billion, according to the market source.

Indexes

The KDP High Yield Daily index added 5 basis points to close Friday at 49.19 with the yield 7.68%.

The index added 9 bps on Thursday, fell 16 bps on Wednesday, gained 54 bps on Tuesday and rose 2 bps on Monday.

The index gained 54 bps on the week.

The ICE BofAML US High Yield index added 9.8 bps with the year-to-date return now 7.814%.

The index was down was down 7.2 bps on Thursday and 15.8 bps on Wednesday after surging 102.6 bps and adding 6.5 bps on Monday.

The index gained 95.9 bps on the week.

The CDX High Yield 30 index gained 20 bps to close Friday at 103.27.

The index was flat on Thursday, was down 7 bps on Wednesday, gained 64 bps on Tuesday and rose 6 bps on Monday.

The index rose 83 bps on the week.

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