II-VI on tap in junkland; Golden Nugget in focus with SPAC deal in jeopardy; Talen tanks

By Abigail W. Adams

Portland, Me., Dec. 2 – The domestic high-yield bond primary market added one deal to a quiet calendar on Thursday.

The deal is currently the only one on the forward calendar.

II-VI Inc. plans to price a $990 million offering of eight-year non-call three-year senior notes on Dec. 8 with initial price talk in the 5½% area, according to a market source.

The primary market is off to a slow start in December as volatility rocked the market after a hawkish about-face by Federal Reserve chair Jerome H. Powell.

However, investor appetite for new paper remains strong despite the volatility and $15 billion to $25 billion in new supply is expected before 2021 draws to a close, sources said.

However, some sources doubted whether that projection would prove to be accurate with only two full weeks remaining before the market begins to wind down for the year.

Meanwhile, the tone in the secondary space improved on Thursday although trading activity remained subdued.

Given the bout of volatility in recent sessions, some sources were surprised the secondary space was not more active.

However, many market players were intent on riding out the rest of the year. “I think most had a decent year and now are just riding it out and focused on starting fresh next year,” a source said.

Topical trades

With the new-deal pipeline drying up, topical news remained a driving force of trading activity.

Golden Nugget Inc.’s 6¾% senior notes due 2024 were in focus with the notes trading off as the gaming company’s parent attempted to halt its SPAC merger.

Talen Energy Supply LLC’s junk bonds were under pressure with the notes off 5 to 7 points after the company announced it had entered into a new first-lien facility to raise needed liquidity after breaching the leverage covenant on its existing credit facility.

Meanwhile, high-yield mutual and exchange traded funds continued to see sizeable outflows with $2.62 billion leaving the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flow report.

The multibillion-dollar outflow comes after funds reported $3.32 billion of outflows the previous week – the largest weekly outflow since last March.

Golden Nugget in focus

Golden Nugget’s 6¾% senior notes due 2024 were in focus on Thursday with the notes trading off as the company’s parent attempts to nix its SPAC deal.

The 6¾% notes were off about ½ point to close the day at par, a source said.

There was $37.5 million in reported volume.

Golden Nugget was slated to go public through a merger with special purposes acquisition vehicle Fast Acquisition Corp.

However, Golden Nugget’s parent company Fertitta Entertainment Inc. is hoping to terminate the SPAC deal, which was slated to close on Dec. 1.

Fertitta is citing the failure of the SPAC to meet the agreement’s termination date to end the deal, The Wall Street Journal reported.

Golden Nugget’s online casino platform went public through a SPAC in 2020 – the deal helped bolster Golden Nugget’s senior notes as it recovered from the post-pandemic sell-off.

Talen tanks

Talen’s capital structure was under pressure on Thursday with the energy company’s junk bonds sinking 5 to 7 points after the company entered into a new first-lien facility.

Talen’s 10½% senior notes due 2026 were the most active in the capital structure. The notes fell 5¼ points to close the day at 58¾, a source said.

There was $25 million in reported volume.

The 6½% senior notes due 2025 were down 7 3/8 points to close the day at 54 5/8.

However, the company’s secured paper fared better with the 7¼% senior notes due 2027 and the 7 5/8% senior notes due 2028 both down about 2 points to 92.

The carnage in Talen’s junk bonds was sparked by an announcement that the company had obtained financing from GoldenTree Asset Management LP and Silver Point Finance LLC of $788 million in a first-lien facility maturing in 2024.

The financing will be used to increase the company’s capital requirement and to repay $238 million to its existing revolving credit facility.

Talen breached the leverage covenant on its existing credit facility during the quarter, its parent company announced during a private presentation to investors, a source said.

The new first-lien facility also primed out Talen’s junk bonds, or pushed them further down the capital structure.

Outflows

After another sizeable outflow in the week through Wednesday’s close, the outflows continued with high-yield exchange-traded funds losing $58 million and actively managed funds losing $325 million on Wednesday, the most recent session the information was available.

The daily outflows contributed to the $2.62 billion that left the space in the week through Wednesday’s close, which was the second consecutive week of multibillion-dollar outflows.

Indexes

The KDP High Yield Daily index gained 2 points to close Thursday at 67.18 with the yield 4.23%. The index was up 14 points on Wednesday, down 6 points on Tuesday and up 10 points on Monday.

The CDX High Yield 30 index gained 38 basis points to close Thursday at 107.77. The index fell 27 bps on Wednesday and was down 48 bps on Tuesday.

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