Junk primary prices $3.65 billion; Triumph flat in secondary; Adient stumbles, recovers

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 1 – March came into the high-yield primary market on Wednesday, if not like a lion then at least like one of the larger cats.

It was the biggest day in a month, with three issuers pricing $3.65 billion in a combined six tranches of dollar-denominated junk.

Meanwhile, it was another sideways day in the secondary space with the cash bond market either side of unchanged as rate concerns continued to weigh on the market.

The optimism about an end to the Federal Reserve’s rate hike campaign that drove the market higher in January has dissipated with several bad inflation prints over the past few weeks.

While the market was debating a potential reduction in rates in 2023, the debate has now turned to how high the Fed will go, a source said.

Some are now calling for a 50 bps rate increase in March and a 6% terminal rate.

While the shift in rate expectations has been extreme, the market has “taken it in stride,” with responses to strong inflationary prints muted and selling in the space orderly, a source said.

However, the market has consistently fought the Fed in its rate hike campaign and “will look at any silver lining,” a source said.

The market has traded in a tight range over the past few sessions. But volatility is in store if the next spate of macro data comes out hotter than expected, a source said.

While the new issuance of January rode the optimism in the market to make large gains in the secondary space, that trend has ended with several recent deals falling flat.

Adient Global Holdings Ltd.’s secured and unsecured notes stumbled out of the gate but recovered to close the day with a nominal premium.

Triumph Group, Inc.’s 9% senior secured first-lien notes due 2028 (B2/CCC+) also fell flat in the aftermarket, despite what some considered cheap pricing.

Larger cat

Executions appeared solid on Wednesday’s $3.65 billion of new paper, with all tranches coming inside, tight or in line with talk.

Teva Pharmaceutical Industries Ltd. priced $1.1 billion of dollar-denominated sustainability-linked senior notes (Ba2/BB-/BB-): $600 million of 7 7/8% 6.5-year notes, upsized from $500 million, and $500 million of 8 1/8% 8.5-year notes.

Both came at par, and both traded to par ¼ bid, par ¾ offered, according to a bond trader who heard that demand was around two-times deal size, across both tranches.

Teva's $2.49 billion equivalent megadeal also included an upsized €800 million tranche (from €500 million) of 7 3/8% 6.5-year notes and €500 million of 7 7/8% 8.5-year notes. Both of those tranches also priced at par on Wednesday.

An acquisition financing from Ritchie Bros. Auctioneers Inc. saw big-time demand, according to the trader.

The Vancouver, B.C.-based auction company priced $1.35 billion of notes: $550 million of 6¾% five-year secured notes (Ba2/BB+) and $800 million of 7¾% eight-year unsecured notes (B1/BB-).

Both priced at par, inside of talk.

Demand at one point was heard to be eight-times deal size, the trader said, adding that falling talk likely eroded that demand somewhat.

Nevertheless, the notes in both tranches were par ¼ bid, 101 offered in thin, late-day trading on Wednesday afternoon, the source said.

In drive-by action Frontier Communications Holdings, LLC priced $750 million of 8 5/8% eight-year first-lien secured notes (B3/B/BB+) at par, in the middle of talk.

The deal was 99¾ bid, par ¼ offered late in the day, the trader said.

And on accelerated timing Alteryx, Inc. priced an upsized $450 million issue (from $350 million) of 7¾% five-year senior notes (B3/B-) at par, at the tight end talk.

The deal had previously been expected to remain in the market until Thursday, sources said.

Away from those Wednesday executions Navacord Inc./Jones DesLauriers Insurance Management Inc. announced a $500 million offering of seven-year senior secured notes set to be in roadshow mode through Friday.

And looking to the “away-from-the-middle-range” department NRG Energy Inc. plans to sell $650 million of series A fixed-rate reset cumulative redeemable perpetual preferred stock (Ba3/B/BB-) on Friday.

The deal is heard to be coming off of the high-yield desk.

NRG is also bringing $740 million of new senior secured first-lien notes (BBB-/BBB-) that will come in an investment grade-style execution, but are expected to trade on the high-yield desk, according to a sellside source.

Adient recovers

In the secondary, Adient’s recently priced secured and unsecured senior notes stumbled out of the gate on Tuesday but recovered to close the day with a nominal premium.

The 7% senior secured notes due 2028 (Ba3/BB+) and 8¼% senior notes due 2031 (B3/BB-) were poised to close the day in the par to par ¼ context, a source said.

Adient priced a $500 million tranche of the 7% notes at par on Tuesday.

Pricing came at the midpoint of talk for a 6 7/8% to 7 1/8% yield.

The deal also included a $500 million tranche of 8¼% notes, which also priced at par.

The yield came in the middle of talk for a yield in the 8¼% area.

Triumph flat

Triumph Group’s 9% senior secured first-lien notes due 2028 “went nowhere” in secondary market activity, a source said.

The 9% notes traded in a tight range around par throughout the session.

The notes looked cheap and played to strong demand during bookbuilding.

However, they seemed to be following a growing trend of new issuance not performing well in the aftermarket, a source said.

Triumph Group priced $1.2 billion of the 9% senior notes at par on Tuesday.

The yield printed at the tight end of the 9% to 9¼% yield talk.

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

Fund flows

Compared to some of the historic fund flow numbers seen over the past fortnight (almost all negative) the daily cash flows of the dedicated high-yield bond funds were altogether unspectacular on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $69 million of outflows on the day.

Actively managed high-yield funds had $52 million of inflows on Tuesday, the source said.

The combined funds are tracking $1.56 billion of net outflows on the week to Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index fell 12 points to close Wednesday at 51.04 with the yield now 7.5%.

The index inched up 2 points on Tuesday after falling 67 points on Monday.

The ICE BofAML US High Yield index was down 21.7 basis points with the year-to-date return now 2.348%.

The index was up 8.5 basis points on Tuesday and 43.6 bps on Monday.

The CDX High Yield 30 index gained 22 bps to close Wednesday at 101.6.

The index fell 19 bps on Tuesday and rose 27 bps on Monday.

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