Junk opens with gains, closes with losses; ADT jumps; Medline higher; Charter weaker

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 6 – While autumn in the bond market got off to a big start in the investment-grade primary market, the junk bond new issue market sat idle on Tuesday with Tellurian Inc.’s $1 billion offering of units composed of notes and warrants the sole deal on the forward calendar.

Meanwhile, the secondary space remained volatile in thin volume on a slow return from the long weekend.

While the market opened Tuesday strong, sellers once again eroded the market’s early gains as Treasury yields continued to march higher.

The cash bond market was up ¼ point early in the session but closed down about an 1/8, a source said.

While Tuesday marked another red day for junkbondland, the real pain was in investment grade.

“It was ugly for IG,” a source said.

The market has been ramping up its bets for a 75 basis points rate increase at the Federal Reserve’s September 20-21 meeting, a source said.

ADT Inc. was an outlier on a weak day for risk assets with its bonds, issued by subsidiary Prime Security Services Borrower LLC, jumping on news State Farm had taken a sizeable position in the company.

Medline Industries’ 3 7/8% senior secured notes due 2029 (B1/B+/BB-) were also higher in active trading.

However, several recent deals continued to struggle with Charter Communications, Inc. subsidiary CCO Holdings, LLC’s 6 3/8% senior notes due 2029 (B1/BB-) and Royal Caribbean Group’s 11 5/8% senior notes due 2027 (B3/B) continuing their downtrend.

Tellurian on deck

On the calendar, Tellurian’s deal is comprised of units that include an 11¼% senior secured note due 2027, initial talk 95.5 area, with attached warrants for the company's common stock.

The units are set to price in the post-Labor Day week.

However long it takes the primary market to regenerate, market-watchers are forecasting a sizable September – as much as $25 billion of gross new issue volume on the month – a market source said on Tuesday.

Should that volume of issuance materialize it would bring September issuance right up to the level of the present year's biggest month, January, which had $25.3 billion. Average monthly issuance for 2022, to date, is a meager $10.6 billion.

Historically, September is the busiest month of the year for high-yield issuance, the market source added.

Last week Bank of America Securities forecast $110 billion of gross new issuance for post-Labor Day through the end of 2022, in a report to its clients.

That would bring 2022 post-Labor Day issuance volume a mere 6% shy of the same period in 2021, which saw $117 billion between Labor Day and the end of the year, according to Prospect News data.

ADT gains

In secondary trading, ADT was an outlier on a weak day for risk assets with the bonds issued by subsidiary Prime Security Services among the biggest gainers of Tuesday’s session.

Prime Security’s 6¼% senior notes due 2028 (B3/B-) rose 2 points to close Tuesday at 90½, according to a market source.

The yield on the notes was about 8½%.

Prime Security’s 3 3/8% first-priority senior secured notes due 2027 (Ba3/BB-) rose 1¾ points to close Tuesday at 87¼ with the yield about 6 3/8%.

ADT was on the rise following news State Farm had invested $1.5 billion in the home security company, which included a $1.2 billion equity investment and a $300 million investment in products.

State Farm has now amassed a 15% equity stake in ADT.

Google, which owns a 6.6% stake in ADT, also announced it was pledging $150 million towards ADT product development after previously committing $150 million, according to a press release from ADT.

Medline improves

Medline’s 3 7/8% senior secured notes due 2029 improved in active trading despite the weakness in broader markets.

The 3 7/8% notes rose ½ point on Tuesday with the notes changing hands in the 85 to 85½ context throughout the session, according to a market source.

The yield on the notes was 6 5/8%.

There was $13 million in reported volume.

While improved on Tuesday, the notes remained near their all-time low.

The 3 7/8% notes have bottomed out in the 84 to 85 range and bounced as high as 90 in the sell-off and rallies since May.

Downtrend

CCO Holdings’ 6 3/8% senior notes due 2029 and Royal Caribbean’s 11 5/8% senior notes due 2027 continued to trend lower in active trading on Tuesday.

CCO Holdings’ 6 3/8% senior notes due 2029 fell another ½ point to close Tuesday at 96½ with the yield breaking above 7%, according to a market source.

The notes were the most actively traded issue in the secondary space with $18 million in reported volume.

The notes broke below a 97-handle last Thursday.

Royal Caribbean’s 11 5/8% senior notes due 2027 were also weaker in active trading.

The notes were off 1/8 point to close the day wrapped around 98.

The yield was now 12 1/8%.

Royal Caribbean’s 11 5/8% notes fell to a 97-handle last Thursday but were pushed back above 98 in thin volume last Friday, a source said.

Fund flows

The net daily cash flows of the dedicated high-yield bond funds were flat-to-slightly-positive on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $317 million of inflows on the day.

However actively managed high-yield funds sustained $302 million of outflows on Friday, the source said.

The combined funds are tracking $789 million of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index was down 12 points to close Tuesday at 53.92 with the yield now 7.3%.

The index posted a cumulative loss of 181 points the previous week.

The ICE BofAML US High Yield index slid 14.7 bps with the year-to-date return now negative 11.346%.

The index posted a cumulative loss of 165 bps the previous week.

The CDX High Yield 30 index gained 88 bps to close Tuesday at 99.04.

The index posted a cumulative loss of 190 bps the previous week.

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