Trading volume light; Avolon trades up; XPO drops; Match active; CommScope improves

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 15 – The high-yield primary market was dormant on Friday. However, the week ahead is expected to be an active one, sources said.

Meanwhile, the secondary space closed the week on firm footing. However, trading volume was light in the run-up to the long weekend, sources said.

Avolon Holdings Ltd.’s 5¼% senior notes due 2024 and its add-on to Park Aerospace Holdings Ltd.’s 5¼% senior notes due Aug. 15, 2022 (Ba2/BB+/BB+) were both trading at a premium to their issue price in active trading.

XPO Logistics, Inc.’s 6 1/8% senior notes due 2023 were in focus with the notes losing ground following its earnings report and the announcement it is facing a reduction in revenue due to a pullback from one of its largest customers.

Match Group, Inc.’s recently priced 5 5/8% senior notes due 2029 were again active in the secondary space although the notes were largely unchanged and continued to lag their issue price.

CommScope Inc.’s 8¼% senior notes due 2027 also came back into focus with the tranche improving in active trading.

The week ahead

The primary market remained dormant on a pre-holiday Friday, according to market sources.

The four-session, post-Presidents’ Day holiday week ahead will be active but not massively active, in the dollar-denominated market, sources said Friday.

A syndicate banker professed visibility on “a couple of deals,” but declined to volunteer any issuer names.

Meanwhile, the European market, which put up a goose egg in the Feb. 11 week, may remain quiet in the week ahead, according to a London-based senior debt capital markets banker who took a phone call prior to the close there.

The European market is expected to meaningfully reactivate – for the first time in 2019 – during an interval that should get under way during the last week of February and extend into the middle of March, the London banker said.

However, some issuers, anticipating a crowd, may elect to step into the market beforehand, in which case the European new issue market might actually open back up in the Feb. 18 week.

Investors have been making it clear that they have cash to put to work in a new issue calendar, the banker added.

New issue concessions

Issuers in 2019 have tended to pay 25 basis points to 37.5 bps of concession to their existing bonds in order to issue new notes and around a point to issue add-ons, a syndicate banker said Friday.

That's about what aircraft leasing and lease management services provider Avolon paid when it issued bonds in two bullet tranches on Thursday, the source added.

Avolon Holdings Funding Ltd.’s 5¼% senior notes due May 2024 came at a concession of about 37.5 bps, the banker said.

The upsized $800 million tranche (from $500 million) priced at par.

The add-on paper to Park Aerospace Holdings Ltd.’s 5¼% senior notes due Aug. 15, 2022 came at a one-point concession.

The upsized $300 million tranche (from $250 million) priced at 101.375 to yield 4.814%.

Avolon saw a notable execution given that pricing came as the market was digesting miserable retail sales numbers for December 2018, a known catalyst for investor pushback on pricing new deals as such news breaks, the banker said.

Although market concessions to issue new bonds have tended to come within that respectable 25 to 37.5 bps range, thus far in 2019, there have been outliers, the banker said.

One notable outlier was Targa Resources Partners LP, the year's very first issuer following a dormant December during which the market, for the first time in its modern history, generated no issuance whatsoever.

Targa issued $1.5 billion of senior notes (Ba3/BB) in two tranches: $750 million of 8.5-year notes that priced at par to yield 6½%, and $750 million of 10-year notes which priced at par to yield 6 7/8%.

Targa paid 65 to 75 bps as a concession to do the deal, which in part was the cost for being the year's debut issuer as well as for being the first junk issuer to price bonds following an extremely volatile month in the capital markets.

More recently CommScope also made a hefty concession, about 65 bps, to issue $1 billion of senior unsecured notes due March 2027 (B1/B+), the banker said.

Avolon trades up

Avolon’s newly priced 5¼% senior notes due 2024 were trading up in the secondary space. The new notes were quoted at par ¾ bid, 101¼ offered.

They were trading in a range of par ¾ to 101 3/8 throughout Friday’s session with the notes printing around 101 1/8 to 101¼ in the late afternoon, according to a market source.

More than $27 million of the bonds changed hands on Friday.

Avolon’s add-on to Park Aerospace Holdings Ltd.’s 5¼% senior notes due Aug. 15, 2022 was also trading well above its issue price.

The 5¼% senior notes due 2022 traded up to 102 1/8 in active trading. More than $14 million of the bonds were on the tape by the late afternoon, according to a market source.

The add-on was not only trading at a premium to its issue price, but also traded about ¼ point above its previous level.

Avolon priced an upsized $1.1 billion of senior notes in two bullet tranches on Thursday.

The deal included the $800 million issue of new 5¼% notes and the $300 million add-on to Park Aerospace Holdings’ 5¼% senior notes due Aug. 15, 2022 mentioned above.

XPO drops

XPO Logistics’ 6 1/8% senior notes due 2023 were losing ground in high-volume activity on Friday after the company reported an earnings miss and announced that one of its primary customers was pulling back.

The 6 1/8% senior notes traded as low as 98 during Friday’s session but rallied into the afternoon to close the day at par 1/8, according to a market source.

More than $29 million of the bonds were on the tape by the late afternoon.

Prior to XPO’s earnings announcement, the notes were trading between 101 5/8 and 102.

XPO’s fourth-quarter earnings report missed on both the top and bottom lines.

XPO reported earnings per share of 72 cents versus analyst expectations for earnings per share of 84 cents.

Revenue was $4.39 billion versus analyst expectations for revenue of $4.56 billion.

The decrease in revenue in the fourth quarter was attributed to the reduction in business from one of XPO’s largest customers.

The reduction in business is expected to persist in 2019 with the transportation company anticipating a loss in revenue of $600 million.

While not specified, the customer is believed to be Amazon, a market source said.

Match active

Match Group’s 5 5/8% senior notes due 2029 saw renewed attention during Friday’s session. However, the notes were largely unchanged.

The 5 5/8% notes were quoted at 99 ¾ bid, par ¼ offered. They continued to trade around 99 7/8, according to a market source.

More than $15.5 million of the bonds were on the tape by the late afternoon.

The 5 5/8% notes have largely lagged their issue price since hitting the secondary space.

Match priced a $350 million issue of the 5 5/8% notes at par on Feb. 8.

CommScope improves

CommScope’s 8¼% senior notes due 2027 were also again active in the secondary space on an otherwise light-volume day.

The 8¼% notes were up about ½ point, according to a market source.

The notes were quoted at 102 bid, 102 3/8 offered in the early afternoon and traded up to 102½ by the late afternoon, sources said.

More than $15 million of the bonds were on the tape by the late afternoon.

While CommScope’s unsecured 8¼% notes improved in active trading, the network infrastructure provider’s secured tranches were quiet on Friday.

CommScope priced an upsized $3.75 billion of senior notes over three tranches at par on Feb. 7.

Thursday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Thursday, a trader said.

High-yield ETFs saw $158 million of inflows on the day.

Actively managed high-yield funds saw $88 million of inflows on Thursday.

News of Thursday's daily flows trails a Thursday afternoon report that the combined funds saw $728 million of inflows on the week to Wednesday's close, according to Lipper US Fund Flows.

The breakdown of those weekly inflows had high-yield ETFS taking in the lion's share, $449 million, while the actively managed junk funds saw $278 million of inflows in the week to last Wednesday's close.

Indexes gain

Indexes posted gains on Friday. However, they were mixed on the week.

The KDP High Yield Daily index rose 10 bps to close Friday at 69.72 with the yield 6.18%.

The index rose 3 bps on Thursday, 4 bps on Wednesday and 13 bps on Tuesday after a 6 bps drop on Monday.

The index saw a cumulative gain of 24 bps on the week.

The ICE BofAML US High Yield index gained 18.3 bps on Friday with the year-to-date return now 5.524%.

The index was largely flat on Thursday, sagging 0.2 bps, after gaining 5 bps on Wednesday, 33 bps Tuesday and 7.7 bps on Monday.

The index saw a cumulative gain of 64 bps on the week.

The index again shot past 5% returns on Tuesday after sinking below the 5% threshold last Thursday.

The index initially crossed the 5% threshold on Feb.5 after surpassing 4% year-to-date returns on Jan.30.

The CDX High Yield 30 index rose 46 bps to close Friday at 106.43.

The index dropped 8 bps on Thursday, was down 10 bps on Wednesday, gained 52 bps on Tuesday, and dropped 2 bps on Monday.

The index saw a cumulative gain of 78 bps on the week.

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