Equitrans, Darling price HY drive-bys; Carnival, Carvana come in; United Rentals down

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 31 – The final day of May brought $1.75 billion of new business in the form of drive-by bond deals from Equitrans Midstream Corp. and Darling Ingredients, Inc.

Both deals were upsized in a receptive market hungry for new paper.

Meanwhile, the rally in the secondary space paused on Tuesday with the cash bond market largely unchanged after last week’s phenomenal three-day rally that wiped out losses from the month.

However, with the Federal Reserve’s balance sheet runoff commencing and the 10-year Treasury yield again on the rise, sources questioned whether last week was the start of an upward trend or if more selling was in store.

Trading activity continued to focus on recent issues with Carnival Corp.’s 10½% senior notes due 2030 (B2/B) and Carvana Co.’s 10¼% senior notes due 2030 (Caa2/CCC) giving back some of last week’s gains.

Outside of recent issues, United Rentals (North America), Inc.’s rate-sensitive senior notes sank more than 2 points.

Post-holiday fanfare

The high-yield new issue market reopened on Tuesday with two issuers pricing a total of three tranches to raise a combined $1.75 billion.

Across the board there was a lot of demand, sources said.

Equitrans Midstream Corp. priced an upsized $1 billion amount of 7½% senior notes (Ba3/BB-/BB) in a two-part drive-by.

The deal, which had been telegraphed to the market at a size of $1 billion, was upsized from $800 million.

It featured an upsized $500 million amount of five-year non-call-two notes and an upsized $500 million amount of eight-year bullet notes.

Both tranches were upsized from $400 million, and priced at par to yield 7½%.

The yields printed in the middle of yield talk – covering both tranches – in the 7½% area. Initial guidance on both tranches was in the low 8% area.

The eight-year bullet saw the greater amount of investor demand, according to a sellside source who said that the tranche was heard to be playing to $2 billion of orders at around 1:30 p.m. ET on Tuesday.

At that time the five-year non-call-two notes were playing to $1.5 billion of demand, the source added.

In spite of the three years difference in duration both issues came with the same coupon, price and yield, with investors paying up for the additional call protection afforded by the eight-year bullet, the sellsider said.

Both broke higher in the secondary market with the eight-year bullet outperforming at 101¾ bid, while the five-year notes were par ¾ bid, 101½ offered, according to the sellside source.

Darling Ingredients, Inc. priced an upsized $750 million issue (from $500 million) of eight-year senior notes (Ba3/BB+/BB+) at par to yield 6%.

The yield printed at the tight end of the 6% to 6¼% yield talk. Initial guidance was 6¼% to 6½%.

The deal was playing to $3 billion of demand early Tuesday afternoon, according to the sellside source who added that the notes broke higher in the secondary market where they were 101 3/8 bid, 101¾ offered, going out.

BofA Securities Inc. was the left bookrunner for the offers from both Equitrans Midstream and Darling Ingredients.

Noting that all three tranches upsized and came inside of initial guidance, the sellsider said that the high-yield new issue market, which had been dormant for well over a week, is apt to see an uptick in activity in the days ahead.

Tuesday's primary market activity took place against a backdrop of considerable volatility in the stock market, the source noted.

However, the high-yield bond market has been rallying hard, the sellsider said, noting that the composite yield to worst of the junk index swooped to 7.01% from 7.73% on Friday.

The euro-denominated high-yield primary market was quiet on Tuesday, as the Euro Zone saw a record 8.1% year-over-year inflation print on consumer prices, sources said.

Meanwhile for the second time this year JPMorgan cut its issuance forecast, and is now looking for €55 billion of gross issuance/€25 billion net issuance for both high-yield bonds and syndicated loans over fiscal year 2022, equivalent to an approximately €5 billion per month amount of gross issuance through year-end, according to a market source.

Carnival comes in

In recent issues in the secondary market, Carnival’s 10½% senior notes due 2030 were giving back some of their gains after shooting to their highest level last Friday since pricing.

The 10½% notes were down 1 point to close the day at 101 7/8, according to a market source.

There was $31 million in reported volume.

The notes, which had struggled under water since pricing at par on May 18, shot up to a 102-handle in last week’s rally.

The notes traded as high as 102¾ last Friday.

Carvana down

Carvana’s badly battered 10¼% senior notes due 2030 also came in during Tuesday’s session.

The notes were down ¾ point to close the day at 89¼ with the yield now 12.419%, according to a market source.

There was $20 million in reported volume.

United Rentals under pressure

United Rentals’ rate-sensitive notes were under pressure on Tuesday although in light volume.

The 3 7/8% senior notes due 2031 fell 2½ points to close the day at 90 7/8 with a yield of 5.2%.

The 3¾% senior notes due 2032 were down 2¼ points to close the day at 90 with a yield of 5%.

There was $7 million in reported volume.

Friday inflows

The dedicated high-yield bond funds saw $575 million of net inflows on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $388 million of inflows on the day.

Actively managed high-yield funds saw $187 million of inflows on Friday, the source said.

The combined funds are tracking $1.3 billion of net inflows for the week that will conclude with Wednesday's close.

Indexes

The KDP High Yield Daily index shaved off 1 point to close Tuesday at 58.15 with the yield 6.25%.

The index posted a cumulative gain of 191 points on the week last week.

The ICE BofAML US High Yield index shaved off 1.6 basis points with year-to-date returns now negative 7.575%.

The index posted a cumulative gain of 303.6 bps the previous week.

The CDX High Yield 30 index fell 17 bps to close Tuesday at 101.59.

The index posted a cumulative gain of 269 bps on the week last week.

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