Junk primary has biggest session year to date; secondary trading ‘ugly’ as selling accelerates

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 27 – Four speculative-grade issuers raised $4.45 billion by selling dollar-denominated bonds on Thursday, making it the biggest session in the new issue market thus far in 2022.

Meanwhile, it was a brutal day in the secondary space as the market finally cracked under selling pressure.

While the cash bond market has held up relatively well amid the volatility in equities throughout the week, it sank on Thursday with the market down ½ to 1 point with some areas weaker.

“There was selling right out of the chute and it kind of cascaded from there,” a source said. “It’s pretty ugly out here.”

The BB credits were among the worst performers although everything was under pressure, the source said.

The selling activity was a reaction to the Federal Reserve’s Wednesday announcement with chair Jerome Powell giving mixed messages on the central bank’s plan to curb inflation.

The deals to price during Wednesday’s session had mixed performances in the secondary space.

Eco Material Technologies Inc.’s 7 7/8% senior secured notes due 2027 (B2/B/B+) and Jacobs Entertainment Inc.’s 6¾% senior notes due 2029 (B2/B) were holding onto their premiums although the notes closed well off their highs.

However, Ero Copper Corp.’s 6½% senior notes due 2030 (B1/B/B) sank below par.

Fertitta Entertainment, LLC’s (Golden Nugget) recently priced 6¾% senior notes due 2030 (Caa2/CCC+) continued to crumble with the notes sinking 2 points to a 97-handle.

Meanwhile, high-yield mutual and exchange-traded funds saw their third consecutive week of multibillion-dollar outflows.

Funds lost $2.807 billion in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flows report.

Funds reported outflows of $2.139 billion for the week ending Jan. 19 and $2.236 billion for the week ending Jan. 12.

athenahealth leads big day

Most of the executions in Thursday’s busy primary market had deals pricing in the middle of price talk that widened as they were on the road.

Of the four new deals, the only one that came tight to talk was the $1 billion issue of 6 1/8% five-year senior secured notes (Ba3/BB/BB) priced by Bausch Health Cos. Inc.

Although ostensibly a drive-by – formally announced on Thursday morning – the deal had in fact been telegraphed to the market over a week ago, at which time pricing conversations were getting underway in the mid-5% area, sources said.

It was heard to be four-times oversubscribed.

The session's biggest deal, the megadeal of the Jan. 24 week, was the Minerva Merger Sub, Inc. (athenahealth) downsized $2.35 billion issue of 6½% eight-year senior notes (Caa2/CCC/CCC+) that priced at par, in the middle talk, but wide to initial guidance in the low-to-mid 6% area.

The deal was playing to a $4.5 billion order book, according to a bond trader.

That strong level of demand notwithstanding, the new Minerva Merger Sub 6½% notes got caught in a downdraft, post-break, when they traded as low as 99 1/8 bid, 99 3/8 offered, then regained ground heading into the close, when they were 99¾ bid, par offered, the trader said, remarking that the moves suggest there was a certain amount of skittishness among investors.

In the wake of Thursday's action two deals, totaling $1.7 billion equivalent, remain on the active calendar as business expected to clear ahead of Friday's close.

Acuris Finance US, Inc. and Acuris Finance Sarl, which do business as ION Analytics, set talk in their $850 million equivalent two-part offering of eight-year senior secured notes (B2/B) on Thursday.

The deal, with which ION Analytics is making its debut in the high-yield primary market, is coming in tranches of dollar-denominated notes talked to yield in the 6% area, tight to initial guidance in the low-to-mid 6% area, and euro-denominated notes talked in the 4¾% area, in line with initial guidance in the mid-to-high 4% area.

Tranche sizes remain to be determined, although the preliminary breakdown is $500 million and $350 million equivalent in euros, according to a trader.

Also Covis Pharma is on deck with its $850 million equivalent two-part offering coming from Covis Finco Sarl and its subsidiary Covis US Finco, LLC of five-year senior secured notes featuring $375 million equivalent of euro-denominated notes with initial talk in the 7% area, and $475 million of dollar-denominated notes with initial talk in the 7½% area.

Holding premium

Eco Material’s 7 7/8% senior secured notes due 2027 and Jacobs Entertainment’s 6¾% senior notes due 2029 maintained premiums to their issue prices in active trading.

However, they closed well off their highs.

Eco Material’s 7 7/8% notes traded up to a 102-handle on the break. However, they closed Thursday at 101½ bid, 101 7/8 offered.

The deal offered a hefty coupon and was heavily oversubscribed, which helped drive the trading level in the secondary, a source said.

The maker of materials used in the production of cement priced an upsized $525 million, from $500 million, issue of the 7 7/8% notes at par on Wednesday.

The yield printed tighter than the 8% to 8¼% yield talk. The deal was heard to be 3.5x oversubscribed.

Jacobs Entertainment’s 6¾% senior notes due 2029 launched the day at 101½ bid, 102½ offered. However, by market close the notes were marked at par ¾ bid, 101¼ offered.

Jacobs priced a $500 million issue of the 6¾% notes at par on Wednesday.

The yield printed in the middle of yield talk in the 6¾% area.

Ero under water

Ero Copper’s 6½% senior notes due 2030 struggled in secondary market activity.

The notes were marked at 99½ bid, par offered heading into Thursday’s close.

“They never got out of their own way,” a source said.

Ero Copper priced a $400 million issue of the 6½% notes at par on Wednesday.

The yield printed in the middle of yield talk in the 6½% area.

Fertitta sinks

Fertitta’s 6¾% senior notes due 2030 continued their downward spiral in secondary activity.

The notes sank 2 points in a single session to close the day at 97½, a source said.

While the notes were weak on Monday and changing hands on a 98-handle, they clawed back to trade on a 99-handle on Wednesday.

The notes have struggled since they hit the secondary space on Jan. 18. However, Thursday marked their lowest level since pricing.

Outflows

The dedicated high-yield bond funds sustained $2.807 billion of net outflows in the week to Wednesday's close, according to a Thursday report from Refinitiv Lipper.

It is the third consecutive week that outflows from the high-yield funds exceeded $2 billion.

It also represents the largest four-week average outflow for junk since March 2021, even though only three of the past four weeks saw negative flows, a market source said.

The most recent daily fund flow numbers available at press time were Wednesday's.

And they were substantial outflows, according to a market source.

High-yield ETFs saw $709 million of outflows on the day.

Indexes

The KDP High Yield Daily index sank 47 points to close the day at 63.93 with the yield now 4.68%.

The index climbed 13 points on Wednesday after falling 5 points on Tuesday and 29 points on Monday.

The CDX High Yield 30 index sank 50 basis points to close the day at 106.41. The index fell 29 bps on Wednesday and 32 bps on Tuesday after rising 19 bps on Monday.

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