Consolidated Communications prices; secondary heavy; Michaels, First Quantum, Methanex flat

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 18 – After one of the highest volume weeks for new deal activity in the history of the junk bond market, only one deal cleared the primary market on Friday.

Consolidated Communications Holdings, Inc. priced Friday's sole deal, a downsized $750 million issue of eight-year senior secured notes (B2/B+).

While the calendar heading into the Sept. 21 week is light, 2020 is on track to break all-time records for new issuance.

Meanwhile, the secondary space was heavy on Friday with equities extending their losses.

However, volume was light with new paper continuing to dominate the tape.

While new paper from Consolidated Communications skyrocketed, several recent deals fell flat in active trading.

Methanex Corp.’s 5 1/8% senior notes due 2027 (Ba1/BB/BB), First Quantum Minerals Ltd.’s 6 7/8% senior notes due 2027 (CCC+/B-), and Michaels Stores, Inc.’s 4¾% senior notes due 2027 (Ba3/B+) were flat to lagging their issue prices.

While Reynolds Group Issuer Inc. and Reynolds Group Issuer LLC’s (Pactiv Evergreen) 4% senior notes due 2027 (B1/B+) were trading with a slight premium, they did not move much, a source said.

Friday’s primary

Consolidated Communications priced Friday's sole deal, a downsized $750 million issue (from $1 billion) of 6½% eight-year senior secured notes (B2/B+) that came at the tight end of yield talk.

The issue size decreased from $1 billion with the shift of $250 million of proceeds to the concurrent term loan (see related story in this issue).

The new paper was in focus after freeing for trade with more than $150 million of the bonds on the tape by the late afternoon.

While the overall market was heavy, the 6½% notes saw a strong break and were marked at 102 bid, 102¼ offered heading into the close, a source said.

Record issuance

Consolidated Communications’ deal pushed issuance for the Sept. 14 week to $19.1 billion, the biggest week thus far in what has been a huge September: $38.6 billion.

Recall that heading into the Labor Day break market sources were looking for a massive September...possibly $50 billion for the month, they forecast.

At Friday's close, the junk bond market had seen $323.9 billion of issuance for 2020, to date.

The all-time yearly issuance record, 2012's $325.2 billion, appears poised to fall, with in excess of one full quarter of the year remaining to play out.

A modest active new issue calendar contains $1.8 billion, which, if completed, will tie and surpass that 2012 record.

A trader who picked up late Friday is looking for the high-powered post-Labor Day new issue dynamo to moderate, somewhat, in the week ahead.

The trader was sensing a certain amount of heaviness in the market, and commented that the momentum which was sending upsized, tight-pricing deals rocketing into the secondary market was a little difficult to detect as the week wound down.

The new First Quantum Minerals 6 7/8% senior notes due October 2027 (CCC+/B-) may have pushed the envelope just a bit too far, the source suggested, recounting that the deal upsized to $1.5 billion from $1 billion and priced inside of price talk, on Thursday.

The S&P 500 index began selling off on Wednesday, when the Federal Reserve signaled it would keep interest rates close to zero for years to support a U.S. economy reeling from the fallout of the coronavirus pandemic, a buyside source said.

A pandemic, a battered economy which the central bank signals might be years before fully recovering, and a pending presidential election being played out against a backdrop of historic political dissonance may be making some investors see a few red signals on the track ahead, the buysider remarked.

Flat

Several of the deals to clear the market during Thursday’s session fell flat in the aftermarket, which sources saw as a combination of tight pricing and a heavy day for the secondary space.

First Quantum Mineral’s 6 7/8% senior notes due 2027 traded as high as par 7/8 on Friday.

However, the notes came in as the session progressed and were wrapped around par in the late afternoon, one source said.

Another source marked them at 99¾ bid, par offered heading into the close.

The bonds had more than $170 million in reported volume by the late afternoon.

First Quantum priced an upsized $1.5 billion, from $1 billion, issue of 6 7/8% notes at par on Thursday.

Pricing came tighter than yield talk in the 7 1/8% area.

Methanex’s 5 1/8% senior notes due 2027 lost the slight premium gained after breaking for trade.

The notes were trading in a range of par ¾ and par on Friday with more than $31 million in reported volume, a source said.

The 5 1/8% notes closed out the previous session at par ¼.

Methanex priced an upsized $700 million, from $600 million, issue of the 5 1/8% notes at par on Thursday.

Pricing came at the tight end of the 5 1/8% to 5 3/8% yield talk.

Michaels Stores’ 4¾% senior notes due 2027 also had a lackluster reception in the secondary space.

The notes were changing hands in the 99 5/8 to par context throughout Friday’s session, a source said.

The small issue was active with more than $82 million on the tape in the late afternoon.

“There were a lot of flippers involved,” a source said.

With allocations small, holders were most likely selling at a level where the trade would clear, the source said.

Michaels priced a downsized $375 million, from $500 million, issue of seven-year senior secured notes (Ba3/B+) at par to yield 4¾%.

Pricing came at the tight end of talk in the 4 7/8% area.

A slight gain

Pactiv Evergreen’s (Reynolds) 4% senior notes due 2027 maintained a slight premium in active trading on Friday.

However, with the tight pricing of the notes, they failed to move much, sources said.

The 4% notes were changing hands in the par 3/8 to par ½ context on Friday, a source said.

There was more than $37 million on the tape by the late afternoon.

The notes were also weak on the break and closed Thursday at par 1/8 bid, par 3/8 offered.

The coupon was low for a single-B credit, a source.

Reynolds priced a $1 billion issue of the 4% notes at par on Thursday. Pricing came at the at the tight end of the 4% to 4¼% yield talk.

The deal was upsized, seesawing through the week after having been initially launched as a $1 billion offering but downsized to $750 million earlier in the week and then finally pricing back up at $1 billion.

The deal priced after the company’s IPO, which fell short of expectations, sources said.

The company’s IPO was $14 a share, well below the $18 to $21 target range.

Shares closed Friday at $11.86.

$317 million Thursday outflows

The dedicated high-yield bond funds had $317 million of net daily outflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $497 million of outflows on the day, while actively managed high-yield funds were positive, having $180 million of inflows on Thursday, the source said.

News of Thursday's daily flows follows a Thursday report that the combined funds saw $526 million of inflows in the week to the Wednesday, Sept. 16 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

All of those weekly inflows, and more, were spoken for by the asset managers, the market source said, noting that the actively managed high-yield funds saw $707 million of inflows in the week to the Sept. 16 close, while the high-yield ETFs sustained $182 million of outflows during that period.

Indexes down

Indexes closed Friday with losses although all saw cumulative gains on the week.

The KDP High Yield Daily index shaved off 1 bp to close Friday at 67.05 with the yield now 5.33%.

The index was down 2 bps on Thursday after gaining 8 bps on Wednesday, 5 bps on Tuesday and 2 bps on Monday.

The index posted a cumulative gain of 12 bps on the week.

The ICE BofAML US High Yield index shaved off 4.6 bps with the year-to-date return now 0.487%.

The index dropped 12.4 bps on Thursday after gaining 16.2 bps on Wednesday, 9.7 bps on Tuesday and 4.7 bps on Monday.

The index posted a cumulative gain of 13.6 bps on the week.

The CDX High Yield 30 index dropped 24 bps to close Friday at 106.49.

The index was down 8 bps on Thursday after gaining 9 bps on Wednesday, 41 bps on Tuesday and 25 bps on Monday.

The index was up 43 bps on the week.

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