TreeHouse active; Royal Caribbean, Eldorado gain; funds add $1.392 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 27 – The domestic high-yield primary market remained dormant on Thursday.

While some sources expect new deal activity to remain on hold until after Labor Day, others predict there may be some limited primary market activity given the extensive demand for new deals.

Meanwhile, the summer doldrums were also taking hold of the secondary space with many accounts checking out in the final days of the month.

While quiet, the space remained firm on Thursday as investors look to outstanding issues to put money to work with the new deal pipeline drying up.

While the market was little changed by Federal Reserve chair Jerome Powell’s speech on Thursday, the travel, gaming and leisure sectors were strong on the heels of the Food and Drug Administration’s approval of Abbott Laboratories’ rapid Covid-19 test.

TreeHouse Foods, Inc.’s 4% senior notes due 2028 (Ba2/BB-) continued to see heavy trading volume although the notes were largely moving sidewise.

Royal Caribbean Cruises Ltd.’s 11½% senior notes due 2025 continued to gape higher in active trading.

Colt Merger Sub Inc.’s (Eldorado Resorts, Inc.) 8 1/8% senior notes due 2027 (Caa1/CCC+) traded up to their highest level since pricing in late June.

Meanwhile, fund flows once again turned positive in the week through Wednesday’s close after sustaining the first outflow since July the previous week.

High-yield mutual and exchange-traded funds had inflows of $1.392 billion, according to the Refinitiv Lipper Fund Flow report.

Previously, they saw a nominal outflow of $301 million.

The doldrums

The primary market remained dormant on Thursday.

Activity in the run-up to the Labor Day holiday weekend, which gets underway following the Friday, Sept. 4 close, is expected to be extremely limited to possibly nonexistent.

Although some market sources forecast follow-through from dealers on the heels of the strong receptions enjoyed by a pair of Tuesday deals – well oversubscribed issues from TreeHouse Foods and IPL Plastics Inc. (both upsized and priced tight to talk) – the window may be closing due to the dwindling available audience, as market participants take advantage of the pre-Labor Day lull to use vacation time, a sell-side source said on Thursday.

Should issuance indeed remain dormant until Labor Day, August 2020 nevertheless remains by far the biggest August in the history of the market.

Its $48.4 billion of issuance in 78 tranches far outdistances the runner-up, August 2012 which saw $29.4 billion in 52 tranches.

TreeHouse active

TreeHouse’s 4% senior notes due 2028 (Ba2/BB-) continued to see active trading on Thursday.

However, the notes were little changed, a source said.

The 4% notes continued to trade in the 101½ to 101¾ context, a level reached shortly after breaking for trade.

The bonds had more than $20 million in reported volume heading into the market close.

TreeHouse priced a $500 million issue of the 4% notes at par in a heavily oversubscribed offering on Tuesday.

Royal Caribbean gains again

Royal Caribbean’s 11½% senior notes due 2025 continued their upward momentum on Thursday.

The notes rose another 1 point to close the session on a 114-handle.

The 11½% notes have been on the rise throughout the week, gaining 4 points since Monday, despite the continued uncertainty surrounding the industry.

The notes were posting gains alongside the broader travel sector on Thursday following news of FDA approval of Abbott’s rapid test for Covid-19.

The $5 test will make travel safer by enabling passengers to prove they are Covid-19 negative, a source said.

Eldorado’s new heights

Colt Merger’s 8 1/8% senior notes due 2027 traded up to their highest level since pricing on Thursday.

The notes traded up to a 105-handle on Thursday and were changing hands in the 105¼ to 105½ context heading into the market close, a source said.

The gaming sector was among one of the beneficiaries of Abbott’s rapid Covid-19 test.

The 8 1/8% notes were the only unsecured tranche from the $6.2 billion three-tranche megadeal that backed Eldorado’s acquisition of Caesars Entertainment Corp. in late June.

The 8 1/8% notes initially struggled in the aftermarket, trading as low as a 96-handle.

However, the notes have steadily improved since the completion of the merger, which created the largest casino and gaming company in the world.

The merged entity kept the name Caesars Entertainment.

Indexes mixed

Indexes were mixed on Thursday with some seeing nominal losses and others continuing upward momentum.

The KDP High Yield Daily index rose 9 basis points to close the day at 67.2 with the yield now 5.36%.

The index was up 13 bps on Wednesday, 15 bps on Tuesday and 8 bps on Monday.

The ICE BofAML US High Yield index continued to solidify itself in positive territory on Thursday.

The notes rose another 8.6 bps with the year-to-date return now 0.623%.

The index was up 7 bps on Wednesday, 26.1 bps on Tuesday and 29.2 bps on Monday.

The CDX High Yield 30 index shaved off 2 bps to close Thursday at 105.48. The index rose 22 bps on Wednesday.

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