TransDigm, Ford active on light trading day; AMC improves; junk funds lose $4.568 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 25 – The domestic high-yield primary market remained dormant on Thursday with activity not expected to resume until post-Labor Day.

Meanwhile, the secondary space saw its first green session of the week with the cash bond market up ¼ point on a strong day for risk assets.

“It’s up but in light volume,” a source said.

While markets were higher on Thursday, the lack of volume in the space called into question the strength and staying power of the move.

Federal Reserve chair Jerome Powell’s Friday morning speech from the Jackson Hole Symposium will be the next major catalyst for the market – to either the upside or the downside, sources said.

The dovish pivot interpretation of Powell’s July 26 speech launched a three-week rally in risk assets with the high-yield market jumping 2½ points and credit spreads tightening almost 75 basis points.

However, the market has given back much of those gains over the past week as the it reassessed its expectations for the Federal Reserve’s rate hike schedule.

Selling pressure has driven the market down about 1½ points since Monday alone and sources expect more selling to be in store if Powell strikes a hawkish tone.

While Treasury yields have come in from the heights reached on Wednesday, yields across durations remain above 3% with the curve remaining inverted.

As market players brace for a volatile session on Friday, topical news and end-of-month repositioning were drivers of activity in the space.

TransDigm Group Inc.’s 6¼% senior notes due 2026 (Ba3/B+) were the most actively traded issue in the secondary space although with little movement in price following an analyst report that saw the company’s bonds as undervalued.

Ford Motor Co.’s recently priced 6.1% senior green notes due 2032 (Ba2/BB+) improved alongside the broader market although the notes remained below par.

However, trading volume in Ford’s most recent offering began to subside with Ford’s 4¾% senior notes due 2043 the most active issue in the company’s capital structure.

AMC Entertainment Holdings Inc.’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) were higher in active trading with the notes paring their losses from earlier in the week.

Meanwhile, high-yield mutual and exchange-traded funds saw one of the largest outflows of the year with $4.568 billion leaving the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flows report.

The outflow breaks four consecutive week of inflows.

Nordic offering

In an otherwise quiet primary market, a Norway-based subsidiary of U.K. staffing solutions company NES Fircroft is in the market with a $300 million offering of NES Fircroft Bondco AS senior secured sustainability-linked notes (B2/B), a Nordic deal coming via ABG Sundal Collier and Pareto Securities.

Investor presentations start next week.

Interest in the deal among high-yield investors in the United States appears to be limited at best, a New York-based bond trader said on Thursday.

Elsewhere the dollar-denominated new issue market remained quiet, and is not expected to reactivate before the Labor Day holiday weekend which begins following the Sept. 2 close.

TransDigm in focus

TransDigm’s 6¼% senior notes due 2026 were among the most actively traded issues in the secondary space on Thursday, although with little movement in price.

The 6¼% notes were wrapped around par heading into the market close, flush with Wednesday’s closing price, a source said.

There was $20 million in reported volume.

While the notes were unchanged, a recent analyst report that stated TransDigm’s bonds were undervalued may have sparked interest in the name, a source said.

Ford active

While Ford’s recently priced 6.1% senior notes due 2026 improved alongside the broader market on Thursday, it was the automaker’s 4¾% senior notes due 2043 that topped the volume charts.

Ford’s 4¾% notes were unchanged in active trading with the notes closing the session at 76½, according to a market source.

The yield was 6.9%.

There was $14 million in reported volume.

The 4¾% notes are a large, liquid issue and the activity was most likely the result of repositioning, a source said.

While volume tempered, Ford’s most recent issue, its 6.1% senior notes due 2026, improved alongside the broader market.

The 6.1% notes rose ¼ point.

The notes were changing hands in the 99½ to par context heading into the market close although the majority of trades were below par, a source said.

Ford priced the $1.75 billion issue at par on Aug. 16. It was one of the most recent deals to clear the primary market.

AMC gains

AMC’s 10% senior secured second-lien notes due 2026 were on the rise in active trading on Thursday.

The notes gained ½ point to close the day at 83½, a source said.

The yield was 16%.

There was $11 million in reported volume.

While still lower on the week, the notes have pared their losses from earlier in the week.

The 10% notes fell 2 points to an 82-handle on Monday as its preferred stock, issued as a special dividend, opened for trade on the New York Stock Exchange.

The preferred stock caused a nearly 10% drop in the company’s common stock.

However, the preferred stock has been seen as a boon for the company’s capital structure with AMC able to raise additional capital for refinancing through the issuance of additional preferred shares.

Indexes

The KDP High Yield Daily index gained 20 points to close Thursday at 56.06 with the yield now 6.78%.

The index fell 8 points on Wednesday, 13 points on Tuesday and 81 points on Monday.

The ICE BofAML US High Yield index gained 23.2 bps with the year-to-date return now negative 9.32%.

The index inched up 3 bps on Wednesday after falling 20 bps on Tuesday and 74.5 bps on Monday.

The CDX High Yield 30 index rose 48 bps to close Thursday at 101.17.

The index gained 34 bps on Wednesday, was flat on Tuesday and sank 84 bps on Monday.

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