Primary brings $1.2 billion; Freeport-McMoRan at par; Boise Cascade positive

By Paul A. Harris and James McCandless

Portland, Ore., July 14 – The primary market continued to generate a steady flow of news on Tuesday.

Pattern Energy Operations LP came with a green deal, a $700 million issue of eight-year senior notes (Ba3/BB-) that priced at par to yield 4½%.

The yield printed 12.5 basis points inside of yield talk in the 4¾% area. Initial guidance was in the 5% area.

Meanwhile Melco Resorts Finance Ltd. joined a parade of Macau-based gaming-focused junk issuers to make a pass at the Yankee high-yield bond market since the pandemic began.

Melco priced a $500 million issue of eight-year senior notes (Ba2/BB) at par to yield 5¾%, at the tight end of yield talk in the 5 7/8% area.

Melco joins Studio City Finance Ltd. which priced $1 billion on July 8, and Wynn Macau Ltd. and Macau-based MGM China Holdings Ltd., both of which raised cash in the dollar-denominated junk bond market in June.

The Macau deals tend to trade on emerging markets desks, but have an audience among straight-up high-yield investors, traders say.

On Tuesday, the high-yield secondary saw a focus on recently priced tranches.

Recent issuance from Freeport-McMoRan Inc., Boise Cascade Co. and Alcoa Corp. held the lion’s share of the volume, trending firm.

Elsewhere, Delta Air Lines, Inc.’s issues were pushed down after reporting worse-than-expected results for the second quarter.

REIT Washington Prime Group Inc.’s paper was better as a resurgence in coronavirus cases put pressure on retail-related names.

The calendar

There was also news on the active forward calendar on Tuesday.

Carnival Corp. kicked off a two-part offering of around $1 billion equivalent of 5.5-year second-priority senior secured notes.

The deal features $550 million of the notes with initial price talk in the 11% area, and €400 million with initial talk in the 10½% area, and could price as early as Wednesday.

On April 1, with news of the coronavirus pandemic generating extreme volatility in the markets, Carnival became one of the first companies from sectors with maximum exposure to Covid-19 to raise cash in the debt capital markets when it priced a $4 billion issue of 11½% first-priority senior secured notes due April 2023.

That stratospheric coupon notwithstanding, Carnival's April deal came with high-grade ratings: Baa2 from Moody's, and BBB- from S&P.

However, the second-priority notes now in the market have both feet squarely planted in junkland: Ba1 from Moody's, and BB+ from S&P.

Elsewhere Joseph T. Ryerson & Son, Inc. plans to price a $500 million offering of eight-year senior secured notes (existing ratings B3/B) on Wednesday.

Early guidance has the notes coming to yield 8¾% to 9%, a chunk. But the Chicago-based metals processor plans to use the proceeds to term out secured notes due May 2022 that pay 11%.

And AdaptHealth LLC is expected to price a $300 million offering of eight-year senior notes (B1/B+) on Wednesday.

Initial price talk has the deal coming to yield in the high 6% area.

The offer was playing to $575 million of demand across 32 accounts at midday Tuesday, according to a bond trader who added that demand was being stoked by approximately $350 million of reverse inquiry.

Newer notes firm

Leading secondary activity, newer issuance was firm accounting for the majority of the day’s volume, traders said.

Phoenix-based mining company Freeport-McMoRan’s two new tranches were holding at par for much of the day.

The 4 5/8% senior notes due 2030 were spotted closing the session at par. The 4 3/8% senior notes due 2028 closed at 100¼ bid.

The two tranches combined saw about $139 million on the tape at the end of the afternoon.

The upsized $1.5 billion deal priced after the Monday session closed.

Also coming to market late Monday, Boise, Idaho-based lumber producer Boise Cascade’s issues were pushing higher.

The 4 7/8% senior notes due 2030 improved by ¾ point to close at 102¼ bid.

By the close, about $38 million of the notes changed hands.

Pittsburgh-based aluminum name Alcoa’s paper was active but finished unchanged.

The 5½% senior paper due 2027 held level to close at 100¼ bid.

The paper saw about $17 million on the tape.

Delta down

Elsewhere, air carrier Delta’s notes were pushed down, market sources said.

The 7 3/8% senior notes due 2026 declined by 4½ points to close at 95 bid.

Early Tuesday morning, the Atlanta-based airline released its earnings report for the second quarter.

The company reported an earnings loss of $4.43 per share, higher than what analysts estimated at $3.97 per share.

Passenger revenue came in at $678 million, representing a 94% decline year over year while cargo revenues dipped 42% to $108 million.

The company expects the weak demand to persist through 2021 and will cut its plan to add 1,000 flights in August in half.

Wash Prime better

Property owner Washington Prime’s issues were better, market sources said.

The 6.45% senior notes due 2024 rose 3½ points to close at 46½ bid.

About $11 million of the notes changed hands.

The Columbus, Ohio-based real estate investment trust’s structure has received heightened attention as spikes in coronavirus cases around the country cast doubt on the reopening prospects of retail locations.

On Monday, the notes hit a year-to-date low at 43 bid.

“It’s a mall owner so it’s trading terribly right now,” a trader said. “I think when the bonds went that low, it caught a lot of eyes.”

As cases became prevalent around the United States in March, the company shuttered all of its indoor malls.

$300 million Monday inflows

The dedicated high-yield bond funds saw $300 million of net daily inflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $342 million of inflows on the day.

However actively managed high-yield funds sustained $42 million of outflows on Monday, the source said.

The combined funds are tracking $451 million of inflows for the week that will conclude with Wednesday’s close, the market source added.

Indexes diverge

The KDP High Yield Daily index went unchanged on Tuesday, ending at 65.45 with the yield slipping to 6.47%.

The index rose 7 bps on Monday, lost 6 bps on Friday and shaved off 2 bps on Thursday.

The ICE BofAML US High Yield index declined by 11.1 bps with the year-to-date return closing at negative 3.461%.

The index gained 39 bps on Tuesday, was down 6.8 bps on Friday and shed 14.36 bps on Thursday.

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