High-yield primary in high gear; EQM, Darling at a premium; secondary rally fades

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 1 – The domestic high-yield primary market launched June with its highest volume day in more than one month.

Four drive-by issuers priced a cumulative $4.3 billion in junk rated paper. Kinetik Holdings LP priced $1 billion eight-year notes (Ba1/BB+/BB+) at a discount; Tenet Healthcare Corp. priced an upsized $2 billion issue of eight-year senior secured notes (B1/BB-/BB-); Ardagh Metal Packaging priced $600 million five-year senior secured green notes (Ba2/BB/BB); and Builders FirstSource, Inc. priced an upsized $700 million issue of 10-year senior notes (Ba2/BB-).

With the pipeline heating up, new deals were once again in focus in the secondary space with the issues to price during Tuesday’s session putting in strong aftermarket performances.

Money was again being put to work in new issues, sources said.

EQM Midstream Partners, LP’s recently priced tranches (Ba3/BB-/BB) were trading with strong premiums to their issue prices with the longer-duration notes outpacing their shorter-duration counterparts.

Darling Ingredients, Inc.’s 6% senior notes due 2030 (Ba3/BB+/BB+) were also trading with a strong premium in secondary action although they closed the day well off their highs.

While new issues were performing well, the rally in the secondary space faded as the 10-year Treasury yield resumed its climb to close the day at 2.914%.

The cash bond market was down ¼ point on Wednesday, a source said.

The primary returns

Pent-up demand, on the part of high-yield bond investors, paved the way for the biggest day in the new issue market in over a month on Wednesday.

Four drive-by issuers, each bringing a single tranche of notes, priced a combined $4.3 billion face amount.

Two of the four deals were upsized.

Executions all came within talk, and tight to initial guidance: one priced inside of talk, one priced at the tight end, one in the middle and one at the wide end of talk.

Wednesday's transactions included:

• Kinetik Holdings LP’s $1 billion 5 7/8% eight-year senior sustainability-linked notes pricing at 99.588 to yield 5.94%, inside of the 6% to 6¼% talk,

• Tenet Healthcare Corp.’s upsized $2 billion (from $1.8 billion) eight-year senior secured notes pricing at par to yield 6 1/8%, at the tight end of yield talk in the 6¼% area,

• Ardagh Metal Packaging’s $600 million five-year senior secured green notes pricing at par to yield 6%, in the middle of yield talk in the 6% area. Initial guidance was tin the 6¼% area, and

• Builders FirstSource, Inc.’s upsized $700 million (from $600 million) of 10-year senior notes pricing at par to yield 6 3/8%, at the wide end of yield talk in the 6¼% area.

All were heard to be oversubscribed in the early part of Wednesday afternoon (see related stories in this issue).

Notably, the big Wednesday session in the junk primary market came as equities remained in the grip of volatility, with the S&P 500 stock index ending 0.75% lower on the day.

Trailing the big Tuesday session, which saw Equitrans Midstream Corp. and Darling Ingredients, Inc. price an overall total of $1.75 billion in a combined three drive-by tranches, the dealers were seeing green shoots, a bond trader remarked.

Wednesday's action ended with one deal aboard the active forward calendar.

Maxar Technologies plans to kick off its $500 million offering of five-year senior secured notes (B2/B) on an investor call scheduled to begin at 11 a.m. ET on Thursday.

The deal will run a Monday to Wednesday roadshow in the week ahead.

Initial guidance has the notes coming to yield in the mid-to-high 7% area.

EQM in demand

EQM’s recently priced tranches were trading with strong premiums in secondary market activity with the notes continuing to add after strong breaks.

However, the longer duration notes were outperforming their shorter duration counterparts.

EQM’s 7½% senior notes due 2027 (the shorter duration tranche) continued to add after a strong break on Tuesday.

The notes traded as high as 101¼ on Wednesday and were trading in a tight range of 101 to 101 1/8 heading into the market close, a source said.

The notes closed the previous session at par ¾ bid.

There was $126 million in reported volume.

EQM’s longer duration 7½% senior notes due 2030 went higher, though.

The notes topped out at 102 3/8 on Wednesday. However, they came in as the session progressed and were changing hands in the 101 7/8 to 102 context heading into the close, a source said.

There was $103 million in reported volume.

While shorter duration notes have been in demand as investors reduce their rate risk, EQM’s longer duration notes were the favored tranche of buyers.

The 2027 notes only have two years of call protection whereas the 2030 notes are non-callable until six months prior to maturity.

The call schedule on the 2030 notes is more like one that you would find in an investment-grade issue and the tranche may have attracted some crossover buyers, a source said.

EQM priced an upsized $500 million, from $400 million, tranche of the 2027 notes and an upsized $500 million, from $400 million, tranche of the 2030 notes at par on Tuesday.

Both priced in the middle of yield talk in the 7½% area.

The 2030 notes played to the greatest demand with order books upwards of $2 billion; the 2027 notes were also heavily oversubscribed with orders of $1.5 billion.

Darling at a premium

Darling’s 6% senior notes due 2030 were also putting in a strong performance in the secondary space.

While the notes closed off the highs of the day, they maintained the large gains made on Tuesday’s break despite a weak day for the secondary space.

The 6% notes traded as high as 102¼ during Wednesday’s session.

However, they fell back to a 101-handle and were changing hands in the 101½ to 101 5/8 context heading into the close.

There was $56 million in reported volume.

In a heavily oversubscribed offering, Darling priced an upsized $750 million, from $500 million, issue of the 6% notes at par on Tuesday.

The yield printed at the tight end of the 6% to 6¼% yield talk.

The deal was heard to have played to $3 billion in demand.

Indexes

The KDP High Yield Daily index shaved off 2 points to close Wednesday at 58.13 with the yield 6.26%.

The index was down 1 point on Tuesday at 58.15 with the yield 6.25%.

The ICE BofAML US High Yield index fell 25 basis points with year-to-date returns now 7.825%.

The index shaved off 1.6 bps on Tuesday.

The CDX High Yield 30 index was down 16 bps to close Wednesday at 101.43.

The index fell 17 bps on Tuesday.

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