Friday quiet after busy junk week; Advanced Drainage holds premium; Builders, Tenet, Ardagh come in

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 3 – On the heels of the biggest week in the high-yield new issue market since late January the primary market sat idle on Friday.

However, there will be activity in the coming week with Maxar Technologies Inc.’s $500 million offering of five-year senior secured notes (B2/B) and Iris Holding Inc.’s $400 million offering of senior unsecured notes (Caa2/CCC+) backing the buyout of Intertape Polymer Group Inc. on the forward calendar.

Meanwhile, selling pressure resumed in the secondary space on Friday with the cash bond market down ½ point following a better-than-expected non-farms payroll report.

Risk assets were again under pressure as the market reassessed its anticipated rate hike schedule for the second half of the year.

While the overall market was weak on Friday, Advanced Drainage Systems Inc.’s 6 3/8% senior notes due June 2030 (Ba2/B+) held onto a large premium despite coming in from the heights reached after breaking for trade.

Other of the deals to price over the week closed Friday on weak footing.

Tenet Healthcare Corp.’s 6 1/8% senior secured notes due 2030 (B1/BB-/BB-) and Builders FirstSource, Inc.’s 6 3/8% senior notes due 2032 (Ba2/BB-) gave back their gains with Tenet’s new notes closing the day flat while Builders sank below its issue price.

Primary eyed

On the heels of the biggest week in the high-yield new issue market since late January the primary market sat idling on Friday.

The post-Memorial Day week saw $6.55 billion of issuance in eight tranches. Excluding the Monday holiday and the idle Friday, all of it came within the space of just three market sessions.

It was the largest amount of weekly issuance since the week of Jan. 24 which saw $6.76 billion in eight tranches.

The new issue market is poised to remain active in the week ahead, sources say.

The dollar prices of junk bonds issued during the past week generally held in, despite ongoing volatility in equities, they say.

And the cash balances of institutional high-yield bond investors remain high.

The junk market saw a big midweek bounce, with the index tightening by 50 basis points on Wednesday, alone, a syndicate banker said on Friday.

Bonds were generally up 1 to 4 points on Thursday, the source added.

The Carvana 10¼% senior notes due May 2030 (Caa2/CCC) were 87½ bid on Friday, up from 84 the previous week.

Those bonds, which came in a $3.275 billion issue in late April, had traded down into the 60s in the interim, sources say.

There is a modest-but-growing pool of prospective high-yield issuers that should come to market if the opportunity to do so arises, the banker said, adding that companies are keen to push out maturities.

And that opportunity may now be at hand, the source asserted.

While the cost of raising capital in the high-yield bond market has risen dramatically since the beginning of the year, the central bank is telegraphing multiple rate increases ahead, so that the cost of capital will almost certainly go higher, the banker said.

Look for $3 billion to $5 billion of issuance in the week ahead, the syndicate banker advised.

However, given the right circumstances that total could jump to as high as $10 billion, a market source said.

Deals from the past week's issuers predominantly came with double-B ratings on both sides of the split.

There was a smattering of high single-B ratings. The Tenet Healthcare $2 billion issue of senior secured first-lien notes due June 2030 came with a B1 from Moody's Investors Service, to go along with the BB- ratings from both S&P Global Ratings and Fitch Ratings. And the Advance Drainage Systems $500 million issue of senior unsecured notes due June 2030 garnered a B+ from S&P to go along with a Ba2 rating from Moody's.

Apart from those exceptions all ratings assigned to the past week's deals were BB- equivalent or better from all ratings agencies.

That's notable because the sole deal on the active new issue calendar has single-B ratings on both sides.

Maxar Technologies plans to shop its $500 million offering of five-year senior secured notes (B2/B) on a Monday-to-Wednesday roadshow in the week ahead.

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

And a deal that is being telegraphed to the market as likely business for the June 6 week will come festooned with triple hooks.

Iris Holding is expected to bring a $400 million offering of senior unsecured notes (Caa2/CCC+) backing the buyout of Intertape Polymer Group by Clearlake Capital Group LP, via left bookrunner Deutsche Bank, a market source said on Friday.

Hence investors who saw nothing but the cream of the credit crop during the past week figure to be canvassed on their appetites for greater risk in the week ahead.

Advanced Drainage at a premium

Advanced Drainage’s 6 3/8% senior notes due 2030 held onto a large premium on Friday despite a weak day for the market, although the notes closed the day well off the heights reached after breaking for trade.

The 6 3/8% notes were changing hands on a 101-handle in heavy volume on Friday.

They traded as high as 101¾ during the session but were in the 101¼ to 101½ context heading into the market close, a source said.

There was $21 million in reported volume.

The heavily oversubscribed deal traded as high as 102 1/8 after breaking for trade.

Advanced Drainage priced a $500 million issue of the 6 3/8% notes at par in a Thursday drive-by.

Pricing came at the tight end of talk for a yield in the 6½% area.

The deal from the supplier of water management systems was heard to be more than four-times oversubscribed.

Giving back

New paper from Tenet Healthcare and Builders FirstSource gave back gains on Friday as selling pressure returned to the secondary space.

Tenet’s 6 1/8% senior secured notes due 2030 fell ½ point to trade in the 99 7/8 to par 1/8 context heading into the market close, according to a market source.

There was $19 million in reported volume.

While the notes failed to break above a par-handle, they traded as high as par 5/8 on Thursday.

Final prints on Thursday were in the par ¼ to par ½ context.

Tenet priced a $2 billion issue of the 6 1/8% notes at par in a Wednesday drive-by.

Builders FirstSource’s 6 3/8% senior notes due 2032 gave back their slim premium and fell to a 99-handle on Friday.

The 6 3/8% notes were changing hands in the 99 5/8 to 99 7/8 context heading into the market close, according to a market source.

There was $11 million in reported volume.

The notes traded up to par ¼ after falling flat on the break.

The $700 million issue priced at par on Wednesday.

Big inflows continue

High-yield ETFs saw a whopping $1.12 billion of daily cash inflows on Thursday, the most recent session for which data was available at press time, according to market sources.

Actively managed high-yield funds saw $35 million of inflows on the day.

News of Thursday's daily inflows follows a Thursday report that the combined funds saw $4.77 billion of net inflows for the week to Wednesday's close, according to Refinitiv Lipper.

That was the largest weekly inflow to the asset class thus far in 2022, and the seventh largest inflow on record, a bond trader said.

Indexes

The KDP High Yield Daily index fell 27 points to close Friday at 57.84 with a yield of 6.36%.

The index was down 2 points on Thursday, 2 points on Wednesday and 1 point on Tuesday.

The index posted a cumulative loss of 32 points on the week.

The ICE BofAML US High Yield index fell 32.9 basis points with the year-to-date return now 8.125%.

The index was down 2.9 bps on Thursday, 25 bps on Wednesday and 1.6 bps on Tuesday.

The index posted a cumulative loss of 62.4 bps on the week.

The CDX High Yield 30 index fell 51 bps to close Friday at 101.1.

The index was up 18 bps on Thursday after falling 16 bps on Wednesday and 17 bps on Tuesday.

The index posted a cumulative loss of 66 bps on the week.

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