OWICs abound; Nexstar skyrockets; Avis, Norbord go up; PG&E gains; funds add $602 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 20 – The domestic high-yield primary market took a back seat to the secondary space on Thursday with the market “on fire” as a risk on sentiment returned in full force.

With many certain of a pending Federal Reserve interest rate cut, an enormous offers-wanted-in-competition was circulating the market, sources said.

While no deals priced during Thursday’s session, Michaels Stores, Inc.’s $500 million offering of eight-year senior notes (B1/B) and Alpha Auto Group’s $225 million offering of five-year senior notes are expected to clear the calendar on Friday.

New paper remained in focus in the secondary space with the recent deals continuing to trade up.

Nexstar Broadcasting, Inc.’s 5 5/8% senior notes due 2027 (B3/B) skyrocketed in the secondary space with the notes continuing to post gains on Thursday after a strong start out of the gate.

Avis Budget Group, Inc.’s 5¾% senior notes due 2027 (B1/BB) and Norbord Inc.’s 5¾% senior notes due 2027 (Ba1/BB+) also rose alongside the overall market.

Outside of the new paper, Pacific Gas & Electric Co.’s 6.05% senior notes due 2034 were active and continuing to post gains.

Meanwhile, high-yield mutual funds and exchange-traded funds saw their second consecutive week of inflows with $602 million entering the space for the week ended Wednesday, according to fund-flow statistics generated by AMG Data Services Inc.

OWICs of historical size

The new issue market took something of a header on Thursday as action in junkland focused on the secondary market where the appetite for risk came roaring back.

Traders labored beneath a gargantuan $4.8 billion of offers-wanted-in-competition (OWICs), as much as four times the biggest daily OWIC amount previously seen, according to a trader in New York.

The high yield ETFs, which saw $872 million of daily cash inflows on Wednesday, were the primary drivers of this herculean bid, sources said.

It lifted the entire market, the New York-based trader said, marking junk ¼ to ½ point higher on the day.

The risk appetites of investors, expecting the Federal Reserve Bank's Federal Open Market Committee to cut the Fed Funds rate in the near-to-intermediate future because the United States economy could be slowing, appear to have undergone reinvigoration, sources said.

Friday’s session

With respect to announced business, the June 17 week appears headed to a quiet close, with just two deals expected to clear the market ahead of the coming weekend.

Michaels Stores is expected to price its $500 million offering of eight-year senior notes (B1/B), a trader said.

The deal had been heard to be facing headwinds.

However, meaningful concessions on price and lender protection, in the form of a stronger covenant package, have set the deal back on course, the source said.

With the covenant changes, an anchor order appeared and dealers booked $700 million of orders by midday on Thursday.

The deal is expected to come with an 8-handle yield, whereas previous guidance had been in the low 7% area, the source added.

Alpha Auto Group, in the market with a $225 million offering of five-year notes, could also cross the finish line Friday, sources say.

With official talk pending, the whisper on Alpha Auto is 8% to 8¼%.

The week ahead

Peering into the week ahead, Hexion Inc. is marketing $450 million of eight-year senior notes (Ba3/B-) on a roadshow set to run through Monday.

Initial talk is 8% to 8¼%.

There is already $400 million in the order book, according to a trader who added that one of the chunkier orders has placed a marker at the wide end of that initial talk.

Elsewhere, Avon Products, Inc. announced in a Wednesday press release that it intends to do a $350 million tap of the Avon International Operations, Inc. 7 7/8% senior secured notes due Aug. 15, 2022.

Dealers have yet to step forward, a trader said late Thursday.

However, the market expects the deal to come yielding 6¾% to 7%, the source added.

Nexstar skyrockets

Nexstar Broadcasting’s 5 5/8% senior notes due 2027 continued to skyrocket in secondary trading with the notes more than 2 points above their issue price.

The 5 5/8% notes traded up to 102¼ bid, 102½ offered Thursday afternoon with more than $75 million in reported volume, according to a market source.

The notes were up another ¾ point after a strong start out of the gate. They closed Wednesday around 101½ bid, 101¾ offered.

Nexstar priced a $1.12 billion issue of the 5 5/8% notes at par on Wednesday.

The yield printed in the middle of final yield talk in the 5 5/8% area, which was tightened from earlier talk in the 5 7/8% area.

Avis trades up

Avis’ 5¾% senior notes due 2027 also continued to post gains on Thursday. The notes were seen at par ¾ bid, 101 offered after closing Wednesday at par ¼, a source said.

More than $41 million of the bonds were on the tape by the late afternoon.

Avis priced a $400 million issue of the 5¾% notes at par in a Wednesday drive-by.

The yield printed at the tight end of yield talk in the 5 7/8% area and low to initial guidance in the 6% area.

The deal was heard to be playing to $1 billion of demand during bookbuilding, a source said.

Norbord gains

Norbord’s 5¾% senior notes due 2027 were also trading up on Thursday.

The notes traded up to 101¼ on Thursday afternoon, a market source said.

With the notes pricing late Wednesday, there was little trading of the notes after they broke for trade.

Norbord priced a $350 million issue of the 5¾% notes at par on Wednesday.

The yield printed in the middle of yield talk in the 5¾% area and tight to the high 5% to 6% area early guidance.

PG&E’s upward momentum

PG&E’s 6.05% senior notes due 2034 were continuing their upward momentum in active trading on Thursday.

The notes climbed another 1 point and were trading hands at 105 5/8 bid, 105 7/8 offered on Thursday, a market source said.

The notes have steadily gained since Tuesday when the embattled California utility announced a $1 billion settlement agreement with local governments to cover taxpayer losses.

However, the notes jumped alongside PG&E’s equity on Thursday after the California governor pressed lawmakers to take action on the proposal to establish a wildfire fund to help utilities cover the liabilities from wildfires started by their equipment.

Wednesday inflows

As previously mentioned, high yield ETFs saw a whopping $872 million of daily cash inflows on Wednesday, according to market sources.

Due to the manner in which Lipper US Fund Flows tracks and reports the flows, the bulk of Wednesday's inflow to the ETFs won't appear in the weekly report that ended on Wednesday, but will rather be factored into the fund flow report for the week ending June 26.

Meanwhile, actively managed high-yield funds saw a much more modest $55 million of inflows on Wednesday, the market source said.

Late on Thursday, the market heard that the combined high-yield funds saw $602 million of net inflows for the week to Wednesday's close, according to Lipper Fund Flows.

Indexes continue to gain

Indexes were again on the rise on Thursday after posting strong gains for the past two sessions.

The KDP High Yield Daily index rose 40 basis points to close Thursday at 70.79 with the yield now 5.42%.

The index gained 10 bps on Wednesday and 8 bps on Tuesday but shaved off 1 bp on Monday.

The ICE BofAML US High Yield index shot past 10% returns on Thursday after only recently crossing the 9% threshold.

The index gained 54.9 bps with the year-to-date return now 10.032%.

The index gained 16.3 bps on Wednesday, was up 34.1 bps on Tuesday and was down 2.1 bps on Monday.

The index shot past the 9% year-to-date return threshold on Tuesday. It initially crossed the 9% threshold on June 11 only to fall below it the following day.

The CDX High Yield 30 index gained 41 bps to close Thursday at 107.8. The index was up 50 bps on Wednesday and 70 bps on Tuesday after dropping 8 bps on Monday.

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