Berry Global, IHO improve; Exela’s downward spiral continues; Ensco gains; Avon weakens

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 24 – The domestic high-yield primary market was quiet on Friday.

With only three deals on the forward calendar, the primary market is expected to remain that way until the middle of next week, sources said.

The secondary space was equally quiet during Friday’s truncated session with many starting the Memorial Day weekend early.

While volume was light, the secondary space firmed with several recent deals improving.

IHO Verwaltungs GmbH’s (Schaeffler) dollar-denominated tranches improved on Friday.

Berry Global Group, Inc.’s recently priced tranches also improved although the second priority notes continued to outperform the first priority notes.

Exela Technologies Inc.’s 10% senior notes due 2023 continued their downward spiral on Friday. The notes have been under pressure since a rating downgrade.

Ensco Rowan plc’s junk bonds rebounded on Friday after the notes traded down following the announcement the company was suspending its dividend payments to shareholders.

Avon Products Inc.’s 7% senior notes due 2023 were trading down on news Natura Cosmeticos SA would purchase the company in an all-stock deal.

The week ahead

The dollar-denominated primary market was quiet on Friday, heading into the holiday weekend, sources said.

The market has been awaiting word on the Neiman Marcus Group Ltd. LLC $550 million offering of five-year second-lien notes.

Early guidance had the deal coming with a blended 14% coupon that would be comprised of an 8% cash payment, with the remaining 6% to be taken out by means of an in-kind PIK payment.

The deal had been scheduled to price before the end of the pre-Memorial Day week. However no further information had become available by press time.

Two other dollar-denominated offerings remain on the active forward calendar.

Houston-based oilfield services provider Q'Max Solutions Inc. is marketing $225 million of five-year secured notes (Caa2/B-) in a Rule 144A and Regulation S offer.

And Calgary-based oil and gas company Obsidian Energy Ltd. is in the market with $100 million of five-year senior notes.

Roadshows for both deals are underway.

Both are being helmed by Pareto Securities.

With the United States bond market closed for the Memorial Day holiday on Monday, new issue activity is unlikely to see a meaningful resumption prior to Wednesday, a banker said.

In Friday's euro-denominated new issue market terms became available on the debut high-yield offering from Germany's Novem Group GmbH which priced an upsized €400 million issue of five-year senior secured floating-rate notes (Ba3/B+/BB-) with a 525 basis points spread to Euribor at par.

The issue size increased from €375 million.

The spread came at the wide end of the 500 to 525 bps spread talk. Initial guidance was in the 500 bps area.

IHO improves

The dollar-denominated tranches from IHO’s (Schaeffler) €2.05 billion equivalent PIK toggle notes deal were improved on Friday, although they were still lagging their issue prices.

The 6%/6¾% senior secured PIK toggle notes due 2027 were seen at 99¾ bid, par 1/8 offered, according to a market source.

The notes were seen at 99 3/8 bid, 99 7/8 offered on Thursday.

The 6 3/8%/7 1/8% senior secured PIK toggle notes due 2029 were seen at 99½ bid, par offered on Friday.

They were at 99¼ bid, 99¾ offered on Thursday.

Both tranches priced at par on Wednesday.

Berry active

Berry Global’s recently priced senior notes returned to focus in the secondary space with the second priority tranche improved in high-volume activity.

The 5 5/8% senior notes due 2027 were up about 3/8 point. They were seen at par ¾ bid, 101½ offered by one source.

The notes were changing hands at 101½ in the late afternoon, another source said.

The notes saw about $10 million in reported volume by the market close.

While volume was light, Berry Global’s second priority tranche was also slightly improved.

The notes rose about 1/8 point to close the day at par 1/8.

Berry global priced a $1.25 billion tranche of the 4 7/8% first priority notes and a $500 million tranche of the 5 5/8% second priority notes at par on May 17.

The tranches have had a mixed reception in the secondary space with the second priority notes trading well above their issue price while the first priority notes largely languished at par.

Exela down again

Exela Technologies’ 10% senior notes due 2023 continued their downward spiral on Friday.

The notes shaved off another 3¼ points to close the day at 77¾, according to a market source.

With more than $39 million in reported volume by the market’s early close, the notes were the most actively traded of Friday’s session.

The notes have been under pressure since Wednesday when the company was downgraded by Moody’s Investors Service to Caa1 from B3.

The company’s weak first quarter and an expectation that a restructuring will further pressure earnings and liquidity was responsible for the downgrade, Moody’s said.

Prior to the downgrade, the notes were trading around 90, sources said.

Ensco rebounds

Ensco Rowan’s junk bonds rebounded in high-volume activity on Friday after trading down during the previous session due to a suspension of the company’s dividend to shareholders.

The 7¾% senior notes due 2026 rose 1 point to 77 with about $16 million in reported volume during Friday’s session.

The notes dropped 3 points on Thursday.

The 4.5% senior notes due 2024 also gained 1 point to close Friday at 71½.

Ensco’s junk bonds were trading down on Thursday after the offshore drilling contractor announced it was discontinuing paying out cash dividends to shareholders.

The move was not unexpected given the company’s debt load, sources said.

Avon comes in

Avon’s 7% senior notes due 2023 were coming in slightly in high-volume activity on Friday.

The notes were down about 1/8 point to close Friday at 103 1/8, according to a market source.

The notes saw more than $15 million in reported volume.

The 7% notes also shaved off about ½ point on Thursday after jumping 1½ points on Wednesday.

After a large initial gain in anticipation of Natura’s buyout of the cosmetics company, the 7% notes were coming in slightly after the buyout was officially announced.

Brazil’s Natura announced the long-anticipated buyout of Avon on Thursday in an all-stock deal. The buyout values Avon at about $3.7 billion, a market source said.

It is expected to close in 2020.

Thursday inflows

The cash flows of the dedicated high-yield bond funds were positive on Thursday, according to a trader.

High-yield ETFs saw $112 million of inflows on the day.

Actively managed high-yield funds saw $120 million of inflows on Thursday, the trader said.

News of Thursday's daily cash flows follows a Thursday afternoon report that the combined funds saw a modest $4 million of inflows in the week to the Wednesday, May 22 close, according to Lipper US Fund Flows.

Combined inflows for 2019 to Thursday's close came to $11.7 billion, the trader said, noting that this closely followed technical metric of the junk bond market has undergone a dramatic reversal of fortune, on a year-over-year basis.

The cash flows of the dedicated high-yield bond funds were negative-$19.8 billion for the year 2018 to the May 23 close, the source recounted.

Indexes mixed

Indexes closed the week mixed for Friday, although all posted cumulative losses for the week.

The KDP High Yield Daily index fell 11 basis points to close Friday at 69.87 with the yield now 5.87%.

The index was down 13 bps on Thursday, was flat on Wednesday, rose 3 bps on Tuesday and fell 3 bps on Monday.

The index posted a cumulative loss of 24 bps on the week.

The ICE BofAML US High Yield index gained 7.7 bps with the year-to-date return now 8.12%.

The index dropped 33.2 bps on Thursday, slid 6.4 bps on Wednesday, gained 20.5 bps on Tuesday and shaved off 1.3 bps on Monday.

The index saw a cumulative loss of 12.7 bps on the week.

The CDX High Yield 30 index dropped 6 bps to close Friday at 105.77. The index sank 43 bps on Thursday, dropped 18 bps on Wednesday, gained 29 bps on Tuesday and dropped 20 bps on Monday.

The index posted a cumulative loss of 58 bps on the week.

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