Junk secondary rally pauses; Uniti holds strong premium; Nordstrom gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 2 – The primary market, which put up $7.6 billion of new issuance in five junk-rated dollar-denominated tranches during the January-February crossover week remained quiet on Friday.

While the active new issue calendar remained empty, a decent shadow calendar is taking shape, sources say.

Meanwhile, the secondary space gave back some gains from its post-Fed rally after a surprisingly strong U.S. nonfarm payrolls report.

With hiring surging in January and unemployment falling to a 53-year low, markets were once again questioning whether the Federal Reserve’s rate-hike campaign had run its course.

The cash bond market was off about 3/8 point on Friday, a source said.

However, the market closed the week with strong gains.

The Uniti Group LP, Uniti Fiber Holdings Inc., Uniti Group Finance 2019 Inc., CSL Capital, LLC 10½% senior secured notes due 2028 (B2/B/BB+) dominated activity in the secondary space.

While the notes gave back some gains from a strong break on Thursday in intraday activity on Friday, they closed the day largely unchanged.

Nordstrom, Inc.’s senior notes were on the rise in active trade following news activist investor Ryan Cohen had amassed a sizeable stake in the company and was plotting a leadership shakeup.

While volume was light, Cornerstone Chemical Co.’s 6¾% senior secured notes due 2024 (B3/B-) skyrocketed 15 points after the company initiated an exchange offer and consent solicitation for the notes.

Shadow calendar

On the junk bond horizon, U.K.-based chemical company Ineos Group Holdings is expected to show up with secured notes in the week ahead, according to a market source.

The deal is expected to feature dollar-denominated notes, according to the portfolio manager.

The company set a Friday lender call to launch a new U.S. term loan B and a fungible add-on euro term loan B.

All told, Ineos seeks to raise €2 billion equivalent between the loans and the expected secured notes.

And Atlas Air Worldwide Holdings Inc. is in the wings with an expected $800 million offering of first-lien senior secured notes (BB/BB+) via Barclays.

The company kicked off an $800 million term loan during the past week.

Proceeds from the debt will be used to support the acquisition of Atlas Air by Apollo.

Although Friday's robust U.S. employment numbers suggest that the labor force remains tight, eroding the market's confidence in an interest rate narrative that imagines a tamer central bank acting with a light touch in the months ahead, the high-yield primary market is definitely open, and issuers are going to come, a trader asserted during the afternoon.

Uniti holds premium

Uniti’s 10½% senior secured notes due 2028 dominated activity in the secondary space with the notes holding on to the strong gains made on the break.

The 10½% notes traded down about ½ point early in the session with the notes marked at 101¼ bid, 101½ offered.

However, the notes reclaimed lost ground and closed the day largely unchanged with the notes trading in the 101¾ to 102 context heading into the market close, a source said.

There was $193 million in reported volume.

Uniti priced a massively upsized $2.6 billion, from $1.75 billion, issue of the 10½% notes at par on Thursday, according to market sources.

The yield printed at the tight end of the 10½% to 10¾% yield talk.

The deal was a blowout with orders heard to have exceeded $7 billion.

Nordstrom gains

Nordstrom’s senior notes were on the rise following news investor Ryan Cohen, of Chewy.com and GameStop fame, had taken a sizeable stake in the company and was planning a leadership change.

Nordstrom’s 4¼% senior notes due 2031 (Ba1/BB+) gained 1½ points to close Friday at 78¾ with the yield about 7.7%.

There was $13 million in reported volume.

While volume was light, Nordstrom’s 4% senior notes due 2027 climbed 2 point to close the day at 90¼ with the yield about 6¾%.

News broke Friday that Cohen, already one of Nordstrom’s five largest non-insider shareholders, had increased his stake and was planning on replacing a company director, a source said.

The news lifted Nordstrom’s capital structure with stock up more than 20% on Friday.

Fitch Ratings recently downgraded Nordstrom’s unsecured notes to BB+ from BBB- and S&P Global Ratings turned Nordstrom’s outlook to negative due to weakening credit metrics and a challenging operating environment, Prospect News reported.

Exchange game

While volume was light, Cornerstone Chemical’s 6¾% senior secured notes due 2024 surged 15 points on Friday on the heels of an announced exchange offer for the notes.

The 6¾% notes jumped to trade in the 96 to 97 context.

There was one seller and two buyers for the notes, a source said.

They closed the previous session at 82.

The activity comes after Cornerstone announced an exchange for any and all of the $450 million notes outstanding.

Those who tender early will receive an exchange consideration of $1,000 in principal of new notes for $1,000 in principal of old notes.

Holders are most likely negotiating attractive terms for the new notes to be issued in the exchange, a source said.

ETFs: $1.6 billion inflows

The high-yield ETFs saw a whopping $1.6 billion of daily cash inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

That's the biggest daily inflow to the ETFs since the record $2.547 billion inflow reported on Nov. 10, 2022, a bond trader said.

Meantime actively managed high-yield funds had negative cash flows on Thursday, sustaining $82 million of outflows on the day, according to the market source.

News of Thursday's daily flows trails a Thursday afternoon report that the combined funds sustained $1.5 billion of net outflows for the week that concluded with the Wednesday, Feb. 1 close, according to Refinitiv Lipper.

It was the second consecutive weekly outflow topping the $1 billion mark, representing a total of negative-$2.8 billion for the two-week period, the market source said.

The combined funds have sustained $1.2 billion of net outflows for the year to Thursday's close, according to the market source.

Indexes

The KDP High Yield Daily index fell 11 points to close Friday at 53.95 with the yield now 6.63%.

The index gained 61 points on Thursday, 14 points on Wednesday and 8 points on Tuesday after shedding 14 points on Monday.

The index posted a cumulative gain of 58 points on the week.

The CDX High Yield 30 index fell 43 bps to close Friday at 103.19.

The index rose 34 bps on Thursday, 53 bps on Wednesday and 55 bps on Tuesday after falling 46 bps on Monday.

The index posted a cumulative gain of 53 bps on the week.

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