Four junk issuers sell $4 billion; real money accounts sell in secondary; outflows top $4 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 3 – Thursday’s junk bond primary market, expectedly busier, managed to get four issuers through pricing for just shy of $4 billion.

Meanwhile, the secondary space saw another volatile session with mini-selloffs and mini-rallies occurring throughout the day.

However, the market “gave up” into the close with sellers firmly in control, a source said.

The market ended the day down about ½ point.

While secondary selling had largely been driven by ETF flows, real money accounts such as pension and insurance funds were among the sellers of Thursday’s session, a source said.

However, the selling activity was orderly and while the market was heavy there was no panic in the space.

New issues were struggling under the heavy market conditions.

AMC Entertainment Holdings, Inc.’s 7½% first-lien senior notes due 2029 (Caa1/B-) were struggling in aftermarket activity.

Mednax, Inc.’s 5 3/8% senior notes due 2030 (Ba3/B+) gave back their premium and were also struggling below par after a strong break.

High-yield mutual and exchange-traded funds saw their outflows accelerate with funds losing $4.043 billion in the week through Wednesday’s close, according to the Refinitiv Lipper US Fund Flows Report.

It was the fourth consecutive week of substantial outflows with funds losing $2.807 billion in the week ending Jan. 26, $2.139 billion for the week ending Jan. 19 and $2.236 billion for the week ending Jan. 12.

4x4 day

Four issuers priced just under $4 billion ($3.976 billion) of dollar-denominated junk on what could pass as Super-Size Thursday.

However, Thursday's session could also pass as Super-Downsize Thursday, as issuers elected to shift an overall total of $1.9 billion of proceeds to the hot, floating-rate leveraged loan market, away from the frostier environs of the mostly fixed-rate speculative grade bond market.

Condor Merger Sub, Inc. (McAfee Corp.), Prince International Corp./PMHC II, Inc., and Scientific Games Holdings LP, all three in the market with M&A deals, were the Thursday issuers that shifted proceeds in such a fashion.

Big demand for bank loan paper, and concerns about rising interest rates are driving cash away from the high-yield bond market, and into the loan market, a trader said Thursday.

Lately the junk bond deals tend to price, allocate and then trade around their new issue prices, the trader added.

At least one of Thursday's deals was an exception.

Worldwide Flight Services Group priced three tranches of five-year senior secured notes (B3/B), including $400 million of fixed-rate notes that priced at par to yield 7 7/8%, tight to talk.

At one point on Thursday the order book was heard to be 2.5-times oversubscribed, said the trader who added that it was something of a “clubby” trade, perceived to be coming with plenty of yield.

The bonds were par ¼ bid, 101¼ offered heading into the Thursday close, the trader added.

In addition to the dollar-denominated notes Worldwide Flight Services priced €340 million of 6 3/8% fixed-rate notes and €250 million of Euribor plus 612.5 basis points floating-rate notes, both at par.

AMC struggles

AMC Entertainment’s 7½% first-lien senior notes due 2029 were struggling in the aftermarket, despite playing to a crowded book.

The 7½% notes were down about ½ point. They were marked at 99¼ bid, 99¾ offered out of the gate and remained in that context throughout the session.

The notes saw a weak break and closed the previous session at 99¾ bid, par ¼ offered.

While the notes struggled under heavy market conditions on Friday, they played to solid demand during bookbuilding.

AMC Entertainment priced an upsized $950 million, from $500 million, issue of the 7½% notes at par on Wednesday.

The yield printed at the tight end of the 7½% to 7¾% yield talk.

The deal played to $1.2 billion to $1.3 billion in demand.

Mednax comes in

Mednax’s 5 3/8% senior notes due 2030 were struggling under heavy market conditions on Thursday after a strong break the previous session.

The 5 3/8% notes “got pounded,” early in the session but rallied as the session progressed.

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

The notes traded as high as 101 after breaking for trade but came in to close the previous session in the par to par ¼ context.

Mednax priced a $400 million issue of the 5 3/8% notes at par on Wednesday.

The yield printed in the middle of yield talk in the 5 3/8% area.

Indexes

The KDP High Yield Daily index sank 16 points to close Thursday at 63.82 with the yield now 4.73%.

The index was up 20 points on Wednesday and 19 points on Tuesday after shaving off 4 points on Monday.

The CDX High Yield 30 index sank 60 basis points to close Thursday at 106.42.

The index was down 19 bps on Wednesday after rising 37 bps on Tuesday and 20 bps on Monday.

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