Junk: Neogen prices; Cano Health gains on buyout speculation; CCC credits pressured

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 6 – Neogen Corp.’s junk bond deal that was expected to price on Wednesday did indeed make it safely through the space and off the calendar.

Meanwhile, it was another quiet day in the secondary sector with trading volume thin despite some volatility in Treasuries surrounding the release of the Federal Reserve Open Market Committee’s June meeting notes.

While there was no repeat of the late May rally sparked by the release of minute notes from the Federal Reserve’s previous meeting, the secondary space continued to bounce off its lows following Tuesday’s heavy open with the cash bond market closing the day up ¼ point.

The 10-year Treasury yield resumed its climb following the release of the Fed’s notes and settled at 2.935%, although the yield curve remained inverted.

While the market has been pricing in a recession, there is still a lot of uncertainty and mixed views about its severity given the continued strength of the labor market, a source said.

“It’s very mixed in terms of views,” a source said.

However, CCC credits continued to underperform as market players position themselves for an economic pullback.

athenahealth Group Inc.’s 6½% senior notes due 2030 (Caa2/CCC/CCC+) and Carvana Co.’s 10¼% senior notes due 2030 (Caa2/CCC) continued to trade near their lows as the broader market firmed.

Short-duration, better-quality credits continued to see buyers, a source said.

However, with few inflows and the new deal calendar thin, trading volumes remained thin.

“People are just sitting on their hands,” a source said.

However, topical news sparked some action in the secondary space.

Cano Health LLC’s 6¼% senior notes due 2028 (Caa2/CCC+), a small, illiquid issue rarely on the tape, jumped in heavy volume amid speculation the company may be a takeover target.

While the notes have not been active, HP Inc.’s exchange offer for Plantronics Inc.’s 4¾% senior notes due 2029 have experienced pushback.

Primary action

Neogen priced a $350 million issue of eight-year senior notes (B2/BB) at par to yield 8 5/8% during the Wednesday session in the high-yield new issue market.

The yield came at the tight end of yield talk in the 8¾% area. Initial guidance was in the high 8% area.

The deal was 2.5-times oversubscribed, according to a sellside source who added that the new Neogen 8 5/8% notes due 2030 broke sharply higher, trading briefly above 102 before easing to around 101¾ bid, heading into the close.

Meanwhile in Europe price talk surfaced Wednesday on a two-part euro-denominated secured bond deal (B/B1/BB+) backing the acquisition of British bookmaker William Hill International’s non-U.S. assets from Caesars Entertainment Inc. by 888 Holdings Ltd.

The bond portion of the financing includes five-year fixed-rate notes talked to yield 11¼% to 11½%, and floating-rate notes talked at a 550 basis points spread to Euribor, with no Euribor floor, at a discount of 85 to 86.

Pricing is expected Thursday.

The final size of the bond deal remains to be announced, sources say.

The bonds had been slated to price last week but were delayed by ongoing market volatility and thinning liquidity ahead of the extended Independence Day holiday in the United States, sources say.

Prior to the delay the bond offer was heard to be benchmark size, with the number £600 million-equivalent, across both tranches, being telegraphed.

CCC’s under pressure

While the market remains uncertain about the severity of the recession it expects, CCC credits continue to underperform as market players position themselves for an economic downturn.

“CCCs are under significant pressure,” a source said. “They’re trading very wide relative to everything else.”

The CCC index closed the previous week with a yield to worst of 14.89%.

athenahealth’s 6½% senior notes due 2030 continued to trade near their all-time lows with the notes changing hands in the 82¾ to 83¼ context on Wednesday.

While the notes remain near their lows, their yield of 9.7% is tight compared to other CCC credits.

Carvana’s 10¼% senior notes due 2030 also remained near their lowest trading level.

The notes were changing hands in the 81½ to 82½ context on Wednesday with the yield north of 14%.

Cano in focus

Cano’s 6¼% senior notes due 2028 jumped in active trading on Wednesday on speculation the health care services provider may be an acquisition target.

The 6¼% notes gained 3 points.

They were marked at 81½ bid heading into the market close after closing the previous session on a 78-handle, according to a market source.

The notes jumped on speculation that Humana may be eyeing the company as an acquisition target after a series of merger and acquisition activity in the sector, a source said.

Plantronics pushes back

HP’s exchange offer for the $500 million outstanding Plantronics 4¾% senior notes due 2029 has reportedly experienced pushback with holders viewing the $2.50 consent payment to amend the indenture as too low.

HP launched an exchange offer late last week for the 4¾% notes with holders offered $1,000 in principal of new HP notes with the same coupon, maturity and 101 poison put, Prospect News reported.

However, HP is offering $2.50 to loosen the covenants governing Plantronics senior notes, particularly the covenant that requires HP to separately report Plantronics’ financial statements.

The payment is low given what HP would need to pay to redeem the notes, sources said.

Plantronics’ 4¾% notes have been wrapped around par in recent activity.

They jumped more than 20 points to trade as high as 102½ after HP announced the acquisition in late March.

The early participation for the exchange offer is July 11 with the exchange offer expiring on July 25.

The acquisition is expected to be completed by the end of 2022.

Tuesday inflows

The dedicated high-yield bond funds had $480 million of daily inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $455 million of inflows on the day.

Actively managed high-yield funds had $25 million of inflows on Tuesday, the source said.

Indexes

The KDP High Yield Daily index gained 20 points to close Wednesday at 54.72 with the yield now 7.56%.

The index was flat on Tuesday.

The ICE BofAML US High Yield index gained 23.3 basis points with the year-to-date return now 13.561%. The index rose 7 bps on Tuesday.

The CDX High Yield 30 index gained 23 bps to close Wednesday at 97.73.

The index was up 50 bps on Tuesday.

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