Junk gives back gains; Borr Drilling holds premium; Worldpay falls; Tenet active

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 25 – With risk-free rates renewing their ascent the junk bond new issue market remained idle on Wednesday with no hard news on the deals on the active forward calendar.

Meanwhile, it was a heavy day in the secondary space with the rally of the previous two sessions short-lived.

There was no single catalyst for the selling in markets that sent the 10-year Treasury yield hurtling back towards the 5% threshold.

Escalating regional tensions in the Middle East, lackluster earnings and macro data that continued to support a hawkish Fed were all contributing features, sources said.

Expectations for the latest GDP reading, slated for release on Thursday, are high with the home sale figures released Wednesday blowing past expectations.

The strength of the consumer has continued to take markets by surprise with the cooling in consumer spending that many had expected failing to transpire.

With markets once again baking in a higher-for-longer rate scenario, the 10-year Treasury yield climbed 13.2 basis points to close Wednesday at 4.958%.

Equity indexes had heavy selling with the tech-heavy Nasdaq dropping 2.43%, its largest single-day decline in 2023.

The cash bond market held in comparatively well and closed the day down 1/8 to ¼ point.

However, the CDX index was off ½ point.

While the broader market was heavy, Borr Drilling Ltd.’s new senior secured notes (B3/BB-/B) were putting in a strong performance in the aftermarket with the notes trading at a premium to their discounted issue price.

The deal played to strong demand with the chunky yield hard to ignore, sources said.

GTCR W-2 Merger Sub LLC’s 7½% senior secured notes due 2031 (Ba3/BB/BBB-) backing the buyout of Worldpay sank alongside the broader market with the notes hitting a new low.

Tenet Healthcare Corp.’s first-lien senior secured notes (B1/BB-/BB-) were active with the notes lower day-over-day but still up on the week as the health care services company stares down earnings.

Forward calendar eyed

In what has been a volatile week for Treasury rates, the 10-year shot above 5%, early Monday, then retreated all the way back to 4.835% on Tuesday, before beginning its climb anew.

With that shadow, the Wednesday session produced no hard news on a couple of deals that are positioned on the active forward calendar.

Cetera Financial Group Inc. is in the market with a $700 million offering of Aretec Escrow Issuer 2 Inc. senior secured notes due August 2030 (B2/B).

A roadshow was scheduled to conclude on Tuesday.

Pending official word on price talk and timing, guidance has the notes coming to yield in the high-9% to 10% area.

Meanwhile, Global Aircraft Leasing Co., Ltd. and Global Sea Containers II Ltd. are believed to still be endeavoring to place $1.95 billion of five-year senior PIK toggle notes (Ba2//BB-), a trader said.

The offer ran a roadshow that started over two weeks ago.

The co-issuers are in the market in order to raise cash to pay off $1.911 billion of Global Aircraft’s 6½% senior PIK toggle notes due September 2024.

Global Aircraft made three PIK payments on those 6½% notes during the height of the Covid shutdown, and investors are keen to incentivize the company to make interest payments on the new notes in cash, sources say.

The issuers addressed that concern in the new deal’s structure, with a novel 200 bps PIK step-up (the customary PIK step-up has been 75 bps).

However, investors want additional guarantees and pledges of assets, sources say.

Early in the week the deal was heard to be in limbo after the prospective issuers rejected covenant changes demanded by an investor representing an anchor order, which would have taken the book above deal-size, sources say.

Borr Drilling at a premium

Borr Drilling’s newly priced senior secured notes held their premium despite a heavy day for the market with the notes continuing to trade well above their discounted issue prices.

The 10% senior secured notes due 2028 and 10 3/8% senior secured notes due 2030 closed the day well off their highs with both tranches shooting up to 99¾ early in the session.

However, they both continued to trade at least 1 point above issue price.

The 10% notes were marked at 98½ bid, 99 offered heading into the market close with the majority of trades in the 98½ to 98¾ context, a source said.

There was $143 million in reported volume.

The 10 3/8% senior secured notes due 2030 slightly lagged their shorter-duration counterpart to close the day in the 98 to 98½ context.

There was $103 million in reported volume.

While the notes were dragged off their highs by a heavy market, they remained in demand with the chunky yield hard to ignore, a source said.

Borr Drilling priced a $1.025 billion tranche of the 10% notes at 97.5 to yield 11.117% and a $515 million tranche of 10 3/8% notes due 2030 at 97 to yield 11.378% on Tuesday.

Pricing came at the tight end of coupon talk and on top of talk for a discounted issue price.

The deal was heavily oversubscribed and played to $3.5 billion of demand, a source said.

Worldpay’s new low

Worldpay’s 7½% senior secured notes due 2031 had heavy selling pressure on Wednesday with the notes falling to their lowest level since the $2.175 billion leveraged buyout financing deal priced in late September.

The 7½% notes sank more than 1 point in heavy volume to break below a 98-handle.

The notes were trading in the 97¾ to 98 context heading into the market close with the yield about 7 7/8%, a source said.

There was $48 million in reported volume.

The notes have struggled in the secondary since pricing at par on Sept. 21.

They traded down to a 98-handle amid the heaviness in the market the previous week.

However, they popped back to 99 as the market rallied on Tuesday.

The notes are a highly liquid, high-beta issue that tends to move with the market, a source said.

Tenet lower

Tenet Healthcare’s senior secured notes were traded in heavy volume on Wednesday with the notes lower day-over-day but still up on the week.

Tenet’s 6 1/8% senior notes due 2028 were off ¼ point although they continued to trade on a 91-handle.

The notes were trading in the 91¼ to 91½ context heading into the market close with the yield about 8¼%, according to a market source.

There was $19 million in reported volume.

The notes closed the previous week wrapped around 90 but gained strength as the market rallied and closed Tuesday at 91¾.

Tenet’s 6¾% first-lien senior secured notes due 2031 (B1/BB-/BB-) were largely unchanged with the notes continuing to trade in the 93½ to 94 context with the yield about 7 7/8%, a source said.

There was $13 million in reported volume.

The notes closed the previous week just shy of 93.

Tenet is slated to report earnings on Oct. 30.

Fund flows

The dedicated high-yield bond funds sustained $258 million of net daily cash outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $165 million of outflows on the day.

Actively managed high-yield funds sustained $93 million of outflows on Tuesday, the source said.

The combined funds are tracking $620 million of net outflows for the week that is set to conclude with Wednesday’s close, according to the market source.

Indexes

The KDP High Yield Daily index was down 13 bps to close Wednesday at 47.94 with the yield now 8.31%.

The index fell 35 bps on Tuesday after gaining 13 bps on Monday.

The ICE BofAML US High Yield index shed 15.2 bps with the year-to-date return now 4.404%.

The index gained 37.6 bps on Tuesday and 23.2 bps on Monday.

The CDX High Yield 30 index fell 58 bps to close Wednesday at 99.15.

The index gained 42 bps on Tuesday and 31 bps on Monday.

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