Lamb Weston, Azek price; United sees pushback; new deals move up; funds add $3.54 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 7 – The domestic high-yield primary market continued to roll out deals at an active clip with three drive-bys clearing the market on Thursday.

Lamb Weston Holdings, Inc. priced a $500 million issue and Azek Building Products, Inc. priced an upsized $350 million issue.

PBF Holding Co LLC and PBF Finance Corp. also priced a $1 billion offering of five-year senior secured notes.

However, United Airlines Holdings Inc.'s $2.25 billion offering of senior secured notes, which was expected to price on Thursday, saw some pushback from investors.

Meanwhile, it was a strong day for the secondary space with the cash bond market up about ½ point in intraday trading although it came in towards the market close, a source said.

New deals remained the focus of trading activity with the paper to price during Wednesday’s session performing well in high-volume activity.

Marriott Vacations Worldwide Corp.’s 6 1/8% senior notes due 2025 (Ba1/BB), O-I Glass, Inc.’s 6 5/8% senior notes due 2027 (B1/B), William Carter Co.’s 5 ½% senior notes due 2025 (Ba2/BB+), and Wolverine World Wide, Inc.’s 6 3/8% senior notes due 2025 (Ba2/BB) were all trading with healthy premiums during Thursday’s session.

Meanwhile, cash continued to enter the space with high-yield mutual and exchange-traded funds recording $3.535 billion in inflows for the week ended May 6.

Thursday’s drive-bys

Lamb Weston Holdings priced a $500 million issue of eight-year senior bullet notes (Ba2/BB+) at par to yield 4 7/8% in a drive-by.

The issue size increased from $400 million.

The yield printed on top of final yield talk, and tight to earlier talk in the 5% area. Initial price talk had the deal coming to yield in the mid-5% area.

Azek Building Products priced an upsized $350 million issue of 9½% five-year senior notes (Caa2/CCC+) at 99 to yield 9¾%, in a deal that was in the market overnight.

The issue size increased from $320 million.

The yield printed tight to the 9¾% to 10% yield talk. The issue price came rich to discount talk of one point to two points.

Meanwhile, PBF Holding Co and PBF Finance Corp. priced a $1 billion issue (Ba2/BBB-/BB-) of five-year senior secured notes with a 9¼% coupon.

It priced at the tight end of talk at 9¼% to 9½%, tight to initial guidance in the 9½% to 10% area.

United sees pushback

United Airlines Holdings’ $2.25 billion secured high-yield notes offer (Ba2/BB-/BB+) engendered pushback from investors professing the belief that the interest rate is too low and the collateral insufficient, market sources said on Thursday.

The company came looking to get the deal done in tranches of three-year notes and five-year notes at a blended rate in the low 9% area.

The bonds are secured by 360 aircraft amounting to roughly 46% of United's mainline fleet, but representing some of the “older vintages” of the airline's portfolio of aircraft, according to a ratings report by Fitch Ratings.

Investors are concerned that their value may not cover the size of the deal, sources say.

United's offer, being led by J.P. Morgan Securities LLC, was playing to an order book that was a little less than half-full on Thursday morning, according to a trader.

That prompted the airline to move the rate discussion to 11% from the low 9% area, the source said, adding that 11% may still not be sufficient to get it across the finish line.

The magic number appears to be 12%, the trader said, adding that United's deal is the first post-Fed offering that has seen such a vigorous amount of pushback.

Marriott in focus

Marriott Vacations’ 6 1/8% senior notes due 2025 were putting in a strong performance in the secondary space.

The notes were trading in a range of par ½ to 101 1/8 in high-volume activity on Thursday with the final prints par 7/8 to 101, a market source said.

The bonds had more than $77 million in reported volume during the session.

Marriott “is a decent company,” a market source said.

While the company’s recently released earnings may have reflected a hit from the coronavirus pandemic, the company “is not being destroyed,” the source said.

Marriott Vacations priced an upsized $500 million issue of the 6 1/8% notes at par in a Wednesday drive-by.

The issue size increased from $400 million.

The yield printed at the tight end of yield talk in the 6¼% area. Initial talk was in the mid-6% area.

O-I Glass trades up

O-I Glass’ 6 5/8% senior notes due 2027 were trading with a healthy premium in high-volume activity on Thursday.

The 6 5/8% notes traded in a range of par 3/8 to 101¼ during Wednesday’s session with the final prints between par 7/8 to 101.

More than $68 million of the bonds were on the tape during Wednesday’s session.

The company was a “high-quality” packaging company and its bonds tended to trade tight pre-coronavirus pandemic, a source said.

However, S&P Global Ratings downgraded O-I Glass to B+ from BB- in April due to lowered sales volume due to the pandemic.

O-I Glass priced an upsized $700 million issue of the 6 5/8% notes at par in a Wednesday drive-by.

The issue size increased from $500 million.

The yield printed at the tight end of yield talk in the 6¾% area. Initial guidance was in the 7% area.

William Carter outperforms

William Carter’s 5½% senior notes due 2025 outperformed in active trading on Thursday.

The notes traded as high as 102¼ in intraday activity but came in as the session progressed.

They closed the day on a 101-handle, a market source said.

The bonds saw more than $72 million in reported volume.

The apparel company for babies and young children may see its sales decrease because of store closures.

However, the niche clothing company is most likely going to be just fine, a source said.

William Carter priced an upsized $500 million issue of the 5 ½% notes at par in a Wednesday drive-by.

The yield printed at the tight end of talk in the 5 5/8% area. Initial talk was in the high 5% area to 6%.

The issue size increased from $400 million.

Wolverine on a 101-handle

While trading volume of the small issue was light, Wolverine World Wide’s 6 3/8% senior notes due 2025 traded up to a 101-handle on Thursday.

The notes were trading in a range of par ¾ to 101½ during Thursday’s session and closed the day between 101 to 101½, a source said.

The bonds had about $13 million in reported volume.

The Rockford, Mich.-based footwear company priced a $300 million issue of the 6 3/8% notes at par in a Wednesday drive-by.

Pricing came tighter than yield talk in the 6¾% area.

Indexes gain

Indexes were on the rise on Thursday.

The KDP High Yield Daily index gained 11 basis points to close Thursday at 62.84 with the yield now 7.46%.

The index was up 4 bps on Wednesday and 20 bps on Tuesday after sinking 13 bps on Monday.

The ICE BofAML US High Yield index gained 20.6 bps with the year-to-date return now negative 9.364%.

The index was up 10.6 bps on Wednesday and 53.6 bps on Tuesday after sliding 13.9 bps on Monday.

The CDX High Yield 30 index gained 129 bps to close Thursday at 94.09. The index sank 87 bps on Wednesday was up 22 bps on Tuesday and dropped 35 bps on Monday.

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