Euro primary active, domestic on hold; junk selling sets in post-CPI; Vistra, Melco below par

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 10 – It was an all-Europe show in the Wednesday primary market, as the syndicate desks in London poured forth a steady stream of news.

A trio of single-tranche, euro-denominated issuers raised a combined total of €1.6 billion.

ELO (BB+), formerly known as Auchan Holdings, priced a €750 million issue of four-year senior bullet notes, Techem Verwaltungsgesellschaft 675 mbH priced a €500 million issue of senior secured notes due July 15, 2029 (B1/B+/B+) and TUI AG priced an upsized €350 million issue of five-year senior notes (B3/B-/B-).

Meanwhile, it was a heavy day in the secondary space on Wednesday with a hotter-than-expected Consumer Price Index report crushing market expectations for a June rate cut.

“It was a terrible report,” a source said.

The cash bond market fell ½ to ¾ point as Treasury yields surged with the market once again downwardly revising rate cut expectations.

The two-year Treasury yield shot up 22 basis points to 4.98% and the 10-year yield 18 bps to 4.55%.

The market entered 2024 with the expectation for six to seven rate cuts and is now debating whether two are on the table with a 50/50 split for July as a possible start date, a source said.

While the Fed is an independent body, the U.S. presidential election in November may throw a further wrench in the rate cut timeline.

While the market was heavy as it priced in a reduction in rate cuts, spreads held up better than expected given the move in Treasuries, a source said.

However, the selling pressure took its toll on some recent deals.

New issuance has been in strong demand with nearly all deals to price in recent weeks trading at premiums to their issue prices in the aftermarket.

Taseko Mines Ltd.’s 8¼% senior secured notes due 2030 (B3/B-/B-) was no exception with the notes holding on to the strong gains made on the break despite the heaviness in the market.

However, Vistra Operations Co. LLC’s 6 7/8% senior notes due 2032 (Ba2/BB/BB) and Melco Resorts Finance Ltd.’s 7 5/8% senior notes due 2032 (Ba3/BB-) sank below par in active trade.

Europe active

All three new euro deals on Wednesday priced following brief roadshows, mostly of a virtual nature.

One deal upsized, while another priced at the high end of its advertised range.

ELO (BB+), formerly known as Auchan Holdings, priced a €750 million issue of four-year senior bullet notes at par to yield 5 7/8%.

The yield printed on top of talk, as the deal played to €2.3 billion of demand, according to an informed source.

The France-based retailer canvassed investors earlier in the week with a proposal to place €500 million to €750 million. Demand for the paper easily supported the higher amount.

Meanwhile Techem Verwaltungsgesellschaft 675 mbH priced a €500 million issue of 5 3/8% senior secured notes due July 15, 2029 (B1/B+/B+) at par.

And TUI AG priced an upsized €350 million issue (from €300 million) of 6¼% five-year senior notes (B3/B-/B-), also at par, in an execution that had the deal pricing inside of talk.

The euro-denominated new issue market promises to be active again on Thursday, as IMA Industria Macchine Automatiche SpA plans to price a €450 million offering of five-year senior secured floating-rate notes (B2/B) talked with a Euribor plus 375 to 400 basis points spread, with no floor, at par.

And Synthomer plc is on deck with a €350 million fixed-rated five-year unsecured deal (B1/BB-), initial talk 7½% to 7¾%.

Demand for euro-denominated paper has generally been robust, sources say, specifying that of course there are deals, and then there are deals.

The new TUI 6¼% senior notes due April 2029 were par ½ bid, 101¼ offered, after pricing earlier Wednesday at par (see above).

However, the new Avolta/Dufry One BV 4¾% senior notes due April 2031 (Ba2/BB+) were trading below issue price on Wednesday at 99.6 bid, par offered, according to the source who added that the deal came on the screws.

The €500 million issue priced at par on Tuesday, coming on the tight end of downwardly revised talk. When Avolta kicked off it did so with a whisper in the low-5% area, subsequently to be talked in the 5% area, with that talk ultimately tightening to 4¾% to 4 7/8%.

Meantime the dollar-denominated new issue market remained sidelined on Wednesday, with junk bonds ultimately selling off by half a point on the heels of the breakaway Consumer Price Index report that came in the morning.

Looking ahead, all eyes are on the Chapter 11 exit financing deal from Endo Finance Holdings, Inc., expected to price before the end of the week.

The $1.25 billion offering of seven-year senior secured notes is a blowout, according to a trader who heard that there is $6 billion of demand in pursuit of the bonds, with some market watchers expecting the deal to launch as low as 9%, versus early whisper in the mid-9% area.

Taseko holds

In secondary trading, Taseko’s 8¼% senior secured notes due 2030 came in from the heights reached after breaking for trade; however, the notes held on to a strong premium despite the heavy day for the market.

The 8¼% notes opened the day at par ¾ bid, 101 offered.

They were off about ¼ point to close the day at par ½ bid, par ¾ offered, a source said.

There was $40 million in reported volume.

Taseko Mines priced a $500 million issue of the 8¼% notes at par on Tuesday.

The yield printed at the tight end of the 8¼% to 8½% yield talk.

Below par

Vistra’s 6 7/8% senior notes due 2032 and Melco Resorts’ 7 5/8% senior notes due 2032 became the first new deals in recent weeks to dip below their issue prices.

Vistra’s 6 7/8% senior notes due 2032 were down about ½ point in heavy volume.

They were trading at 99½ bid, par offered heading into the market close, a source said.

There was $38 million in reported volume.

Vistra priced an upsized $1 billion, from $750 million, issue of the 6 7/8% notes at par in a Tuesday drive-by.

The yield printed at the tight end of yield talk in the 7% area.

Melco Resorts’ 7 5/8% senior notes due 2032 were also off about ½ point.

The notes were marked at 99½ bid, par offered heading into the market close.

Melco Resorts priced an upsized $750 million, from $500 million, issue of the 7 5/8% notes at par on Tuesday.

The yield printed at the tight end of revised talk for a 7 5/8% to 7¾% yield, which tightened from earlier talk for a yield of 7¾% to 7 7/8%.

Indexes

The KDP High Yield Daily index fell 40 basis points to close Wednesday at 49.77 with the yield 7.14%.

The index added 9 bps on Tuesday and slid 2 bps on Monday.

The ICE BofAML US High Yield index fell 52.3 bps with the year-to-date return now 0.659%.

The index was up 17.4 bps on Tuesday and 4 bps on Monday.

The CDX High Yield 30 index was down 58 bps to close Wednesday at 106.36.

The index was flat on Tuesday and gained 23 bps on Monday.

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