Macy’s warmly welcomed; BellRing strong in HY trading; energy names up; Charter tumbles

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 2 – The domestic high-yield bond primary market returned to action on Wednesday with Macy's Retail Holdings LLC’s pricing of a two-tranche offering.

Both tranches were warmly welcomed by a primary market that has been short of new paper supply in recent weeks.

Meanwhile, the secondary space firmed on Wednesday with the cash bond market up ¼ to 3/8 point as buyers returned to the space.

BellRing Distribution, LLC’s recently priced 7% senior notes due 2030 (B3/B) were putting in a strong performance in the aftermarket with the notes reclaiming a 102-handle.

While the overall market was strong, rate-sensitive names did not participate in the rally with the 10-year Treasury yield again on the rise following Federal Reserve Chair Jerome H. Powell’s testimony to Congress.

The 10-year Treasury yield rose 153 bps to close the day at 1.878%.

While Powell voiced support for a 25 bps rate hike in March, he signaled a more aggressive rate hike schedule may be in store for the remainder of the year.

Charter Communications’ split-rated senior notes tumbled as a stock downgrade compounded pressure on the rate-sensitive name.

While surging crude oil futures fueled the inflationary concerns that were driving down rate-sensitive names, energy credits continued to climb higher.

Comstock Resources, Inc.’s 6¾% senior notes due 2029 (B3/B) continued to rebound an all-time low in last week’s sell-off.

AMC Entertainment Holdings, Inc.’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) also recouped their losses and returned to a 93-handle in active trading following earnings.

Macy’s drive-by

Macy's drove by with an $850 million two-part offering of senior notes (Ba2/BB/BBB-) on Wednesday, in a blowout deal that saw the notes in both tranches price through talk.

The session's sole deal, it featured $425 million of eight-year notes that priced at par to yield 5 7/8%, and $425 million of 10-year notes that priced at par to yield 6 1/8%

Both tranches came 12.5 basis points through talk.

Late Wednesday afternoon Macy's new 5 7/8% notes due March 2030 were 101 5/8 bid, 102 offered, and the 6 1/8% notes due March 2032 were 101¾ bid, 102¼ offered, according to a trader.

Demand for Macy's paper was intense, the source said, adding that the deal was heard to be more than seven-times oversubscribed across both tranches.

There was not a lot of evidence that either tranche saw a highly disproportionate amount of that demand, the trader remarked.

When the deal was announced to the market, early Wednesday morning, it was half done in reverse inquiry, the source added.

In the wake of the Macy's deal the active new issue calendar stood empty.

However, given the treatment that the Cincinnati-based retailer received, and the fact that junk is generally holding in – as investors brave a gale of negative geopolitical and macroeconomic headlines – the high-yield primary market could soon reactivate, in earnest, sources said.

BellRing strong

BellRing’s 7% senior notes due 2030 were putting in a strong aftermarket performance with the notes reclaiming a 102-handle.

The notes were marked at 101¼ bid, 101¾ offered early in the session.

However, the notes moved up in the afternoon and were changing hands in the 102 to 102¼ context heading into the market close, a source said.

The 7% notes were at 102 bid on the break on Tuesday but came in to close the previous session on a 101-handle.

BellRing returned to the primary market and priced a restructured $840 million issue of the 7% notes at par on Tuesday.

The yield printed on top of official talk. However, the maturity was decreased to eight-years from 10-years in the restructuring.

The deal was the first new paper of the week. The deal was expected to price the previous week but BellRing postponed due to the volatility in the market.

Charter Communications tumbles

Charter’s split-rated senior notes were under pressure on Wednesday, giving back most of their gains from the rally in rate-sensitive names the previous two sessions.

Charter’s 4.4% notes due 2061 sank 2½ points to close the day at 88¼, according to a market source.

While the notes closed last week on an 88-handle, they traded as high as 91 the previous session amid the rally in rate-sensitive names.

Charter’s 3.9% senior notes due 2052 fell 1½ points to close Wednesday at 86.

While the notes closed the previous week on an 85-handle, they traded up to 87½ on Tuesday.

In addition to the pressure on rate-sensitive names on Wednesday, Charter’s stock was recently downgraded with an analyst expressing concern over rising competition.

Energy strong

Crude oil futures continued to surge on Wednesday, fueling the inflationary concern that was again pressuring rate-sensitive names, but also continuing to lift energy credits.

Comstock Resources’ 6¾% senior notes due 2029 continued their upward momentum after hitting an all-time low two weeks ago.

The 6¾% notes gained 1½ points to close the day just shy of 104, a source said.

The notes have been on a strong downtrend since January and traded down to a 99-handle two weeks ago as the sell-off in the market gained steam.

The level was the lowest for the notes since they priced at par in February 2021 with an add-on pricing at 103 in March 2021.

However, they have rebounded strongly over the past week as crude oil futures surged.

WTI crude oil futures traded as high as $112.51 on Wednesday before settling at $111.40, an increase of $7.19.

Futures topped $100 on Tuesday.

Oil futures have surged since Russia’s invasion of the Ukraine, which has threatened the global energy supply.

Fund flows

The dedicated high-yield bond funds saw $71 million of net inflows on Tuesday, according to a market source.

Actively managed high-yield funds saw a healthy $450 million of inflows on the day.

High-yield ETFs, however, were decidedly negative on the day, posting $379 million of outflows on Tuesday, the source said.

Although the year-to-date cash flows of the combined junk funds are reckoned to be right around negative-$18 billion, a steady stream of coupon payments and calls is obviating those negative flows, a market source said on Wednesday.

Indexes

The KDP High Yield Daily index fell 3 points to close Wednesday at 62.81 with the yield now 5.06%.

The index gained 7 points on Tuesday and 18 points on Monday.

The CDX High Yield 30 index gained 49 basis points to close Wednesday at 105.38.

The index sank 67 bps on Tuesday and 29 bps on Monday.

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