DirecTV, McLaren price low-grade bonds; McGraw-Hill struggles; Builders, Carnival at a premium

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 22 – The domestic high-yield primary market continued to churn out new issues on Thursday with two issuers clearing the market.

DirecTV Entertainment Holdings LLC priced a $2.3 billion issue of six-year senior secured notes (Ba3/BB/BBB-) and McLaren Automotive priced a $620 million issue of five-year senior secured notes (Caa1/CCC+/B).

Only one deal remains on the forward calendar heading into Friday’s session – Ithaca Energy (North Sea) plc’s $625 million offering of five-year notes (B3//B+).

Meanwhile, the secondary space hit a standstill on Thursday with the market unchanged after a volatile week that saw a steep sell-off on Monday and a dramatic rebound over Tuesday and Wednesday.

While the market bounced back over the past week, there remains an air of apprehension with inflation front and center in people’s minds, a source said.

With the primary market unleashing a deluge of deals after a pause earlier in the week, new paper dominated activity in the secondary space, albeit with mixed trajectories.

McGraw-Hill Education, Inc.’s two tranches were struggling in the aftermarket with both dropping below par soon after breaking for trade.

Carnival Corp.’s 4% first-priority senior secured notes due 2028 (Ba2/BB-) and Ashton Woods USA LLC’s 4 5/8% senior notes due 2029 (B2/B) were trading with a premium in the secondary space although the notes remained on a par-handle.

Builders FirstSource, Inc.’s 4¼% senior notes due 2032 (B1/B+) traded more than 1 point above their issue price with the notes looking relatively cheap compared to industry peers.

Meanwhile, outflows continued with high-yield mutual and exchange-traded funds seeing $742 million leave the space through Wednesday’s close, according to the Refinitiv Lipper Fund Flow Report.

Thursday’s primary

Amid a steady stream of Thursday news in the high-yield new issue market two issuers priced single-tranche deals at the conclusions of roadshows.

Both were heard to be playing to demand far in excess of the deal sizes.

Executions were sharp, with one pricing at the tight end of talk, and the other pricing inside of talk.

DirecTV priced a downsized $2.3 billion issue (from $3.1 billion) of 5 7/8% six-year senior secured notes (Ba3/BB/BBB-) at par, tight to talk.

A trader, noting that the par-pricing notes shot to 103 bid, 103½ offered, said demand must have been massive.

And British performance carmaker McLaren Automotive priced a $620 million issue of 7½% five-year senior secured notes (Caa1/CCC+/B) at par, 12.5 basis points inside of talk.

The deal was heard to be playing to a very strong order book on Thursday morning.

When the curtain came down on Thursday's session just one dollar-denominated deal remained on the calendar as business expected to clear ahead of the coming weekend.

Ithaca Energy talked its $625 million offering of five-year notes (B3//B+) to yield 8¾% to 9% on Thursday.

McGraw-Hill struggles

McGraw-Hill’s two tranches of senior notes were struggling in the aftermarket with both issues trading down on the break and remaining underwater during Thursday’s session.

The 5¾% senior secured notes due 2028 (B2/B) and 8% senior notes due 2029 (Caa2/CCC) were at roughly the same level in the aftermarket.

Both were marked at 99½ bid, par offered heading into the close, a source said.

The deal played to lackluster demand with the publisher of educational resources and textbooks from an undesirable industry.

“This industry needs to transform with the times,” a source said. “A lot of people passed on this deal.”

McGraw-Hill priced a downsized $900 million, from $1.15 billion, tranche of the 5¾% senior secured notes and a downsized $725 million, from $875 million, tranche of the 8% notes at par on Wednesday.

The 5¾% notes priced wider than talk for a yield in the 5½% area; the 8% notes priced wider than talk for a yield in the 7¾% area.

The two-tranche offering was twice downsized – first from $2.025 billion to $1.675 billion and then to $1.625 billion.

Carnival’s refinancing

Carnival’s newly priced 4% first-priority senior secured notes due 2028 were trading with a decent premium in the secondary space.

The notes were marked at par 3/8 bid, par 5/8 offered and were wrapped around par ½ heading into the close, a source said.

For first-lien notes with a double-B credit rating, the deal looked pretty cheap, a source said.

However, proceeds from the offering were to be used to fund the tender for the company’s 11½% first-priority senior secured notes due 2023, which priced in April 2020, at the outset of the Covid-19 induced economic shutdown.

“I’ve never seen a company able to refinance 700 bps tighter in a year,” a source said. “That just tells you where [the market is] at.”

Carnival priced $2,405,500,000 of the 4% notes at par on Wednesday.

The yield printed at the tight end of the 4% to 4¼% yield talk.

Par-handle

Ashton Woods’ 4 5/8% senior notes due 2029 were also trading with a premium in the secondary space, although the notes also remained on a par-handle.

The 4 5/8% notes were marked at par bid, par ½ offered heading into the market close, a source said.

The Roswell, Ga.-based homebuilder priced an upsized $350 million, from $300 million, issue of the 4 5/8% notes at par on Wednesday.

Pricing came at the tight end of the 4 5/8% to 4¾% yield talk.

Builders FirstSource gains

Builders FirstSource’s 4¼% senior notes due 2032 were putting in a strong performance in the secondary space with the notes trading up to 101, according to a market source.

The 4¼% notes from the building supplies manufacturer looked cheap compared to its industry peers, a source said.

Masonite International Corp. priced a $375 million issue of 3½% notes due 2030 (Ba1/BB+) at par on July 9.

While Masonite is a door manufacturer, the two companies are from the same sector and Builders FirstSource’s offering looked cheap on a relative basis, a source said.

Builders FirstSource priced an upsized $1 billion, from $800 million, issue at par to yield 4¼% in a Wednesday drive-by.

The yield printed at the tight end of yield talk in the 4 3/8% area.

Indexes

The KDP High Yield Daily index gained 11 points to close Thursday at 70.14 with the yield now 3.71%. The index gained 16 points on Wednesday, 2 points on Tuesday and 33 points on Monday.

The CDX High Yield 30 index slid 3 basis points to close Thursday at 109.59.

The index gained 35 bps on Wednesday and 28 bps on Tuesday after sinking 53 bps on Monday.

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