Morning Commentary: Thursday HY deals trade to premiums; year-end calendar dries up

By Paul A. Harris

Portland, Ore., Dec. 10 – The high-yield bond market opened unchanged on Friday as investors continue to digest the past week's $6.6 billion burst of issuance, which may prove to be the final hurrah of the 2021 primary market, sources said.

With crude oil trading back above $70 per barrel and the major U.S. stock indexes in positive territory, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.2%, or 17 cents, at $86.60 at mid-morning.

Deals priced Thursday were trading at premiums to new issue prices, sources said.

The Howard Midstream Energy Partners, LLC 6¾% senior notes due January 2027 (B3/B) were 101½ bid, 102 offered on Friday morning, according to a trader.

The $400 million issue priced at par on Thursday, at the tight end of talk, playing to $1.5 billion of demand.

FirstCash, Inc.'s new 5 5/8% senior notes due January 2030 (Ba2/BB) were wrapped around 101 on Friday morning, after pricing Thursday at par in an upsized $550 million issue (from $525 million) heard to have been playing to around $1.4 billion of orders.

The WeWork deal that came in a $550 million deeply discounted secondary sale on Thursday was also better on Friday morning.

The WeWork Cos. LLC/WW Co-Obligor 5% senior notes due July 10, 2025 (CCC+/CCC-) were 86½ bid, 87 offered at mid-morning, having priced at 85.989 to yield 9¾% on Thursday afternoon in a trade that had a notable following among hedge funds.

The secondary sale was held by an affiliate of SoftBank. No proceeds will go to WeWork.

The 5% mark

Headline news about coronavirus, inflation, the vagaries of economic recovery and geopolitics, which has buffeted global capital markets in recent weeks, also caused the return of the high-yield index to gyrate notably, a New York bond trader recounted on Friday.

Marking the BofA Merrill Lynch US High Yield Master II Index year-to-date return at 4.6% on Friday morning, 5 basis points lower from a day ago, the trader said that the index has nonetheless staged a remarkable rally from its low of 3.41% on Nov. 29.

In early November, returns shot above 5% as the index staged a colossal 38 bps rally on Nov. 5, which took it to 5.1% from 4.72% in one day.

It then continued to advance, topping out at 5.27% on Nov. 9.

Through it all, cash bonds tended to hold in, the trader noted.

The Cheniere Energy Partners, LP 3¼% senior notes due January 2032 (Ba2/BB/BB+) were 99½ bid, par offered on Friday, pretty much where they have been situated since the deal came, at par, in a $1.2 billion issue on Sept. 13.

The US Foods, Inc. 4 5/8% senior notes due June 2030 (B3/B+), which were par ¾ bid, 101¼ offered on Friday, never really broke back below par, where they priced on Nov. 16.

The bonds were 99¾ bid, par ¾ offered at the lowest, the trader said.

The Tenet Healthcare Corp. 4 3/8% senior secured first-lien notes due January 2030 (B1/B+/B+), which were par ½ bid on Friday, never went below 99½, the trader said.

The $1.45 billion issue priced at par, also on Nov. 16. (The Tenet deal came cheap, unlike the above-mentioned Cheniere deal, which was priced on the screws, market sources say).

When pressed for an example of a junk bond that did get caught up in the chop which seized the markets in mid-November, the trader pointed to the Molina Healthcare, Inc. 3 7/8% senior notes due May 2032 (Ba3/BB-), a bullet, which were par bid, par ½ offered on Friday.

Since pricing at par on Nov. 1, in a $750 million issue, those bonds printed as low as 97½ and as high as 101¼, the trader said.

Noting that the 2021 new issue calendar appeared to be all but played out, the trader expressed the belief that the stage is now set for high-yield investors to shift their focus to the secondary market.

Should that occur against a reasonably supportive backdrop in global health, the economy and geopolitics, it is entirely possible that the yearly return of the index can once again top the 5% mark during the run-up to 2022, the trader said.

With respect to that calendar, only one deal remained in the market on Friday morning.

Skillz Inc., a San Francisco-based online game competition platform, is on the road with its debut deal, a $300 million offering of five-year first-lien secured notes. Initial guidance has it coming at a discount to yield 11%, with pricing expected on Wednesday.

Thursday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Thursday, according to a market source.

Actively managed high-yield funds saw healthy or better inflows of $510 million on the day.

However high-yield ETFs sustained $294 million of outflows on Thursday, the source said.

News of Thursday’s daily flows trails a Thursday report that the combined funds saw $1.26 billion of net inflows in the week to the Wednesday, Dec. 8 close, according to Refinitiv Lipper.

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