Secondary junk bonds volatile, close week with heavy losses; Ford active; DISH improves

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 2 – The new issue bourse remained quiet as expected as Summer 2022 closed in the bond market on Friday.

However, there is a modest post-Labor Day pipeline already in place.

Tellurian Inc. is on deck with its $1 billion offering of units composed of secured notes and warrants.

Tenneco Inc.’s $3 billion leveraged buyout financing deal is expected to surface in the weeks ahead, as may another megadeal backing the buyout of Citrix Systems Inc.

Meanwhile, Friday marked another session that left sources saying WTF with the strong gains made after the release of the non-farm payroll report early in the day swinging to losses by the market close.

The CDX index was up as much as ½ to 5/8 point early in the session, a source said. However, it closed down 1 point.

“What happened? Who spoke?” a source said.

While the ICE BofAML US High Yield index logged a daily gain due to the illiquidity of the market, the index lost more than 1½ points over the past week.

Liquidity remained thin heading into the long weekend.

Ford Motor Co.’s 6.1% senior green notes due 2032 (Ba2/BB+) remained one of the top traded issues in the space with $10 million in reported volume heading into the close.

However, the notes saw little movement in price as they continued to trade around their all-time lows.

DISH DBS Corp.’s senior notes were nominally improved in active trading.

The pipeline

The new issue bourse remained quiet as expected, as Summer 2022 closed out in the bond market on Friday ahead of the extended Labor Day holiday weekend.

The pre-holiday week came and went with no new junk-rated, dollar-denominated issuance.

One deal was launched into the market during the past week.

Tellurian Inc. held a midweek investor call for its $1 billion notes/warrants project financing.

The offer 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.

Sole bookrunner B. Riley Securities, Inc. makes its debut at the helm of a public high-yield deal with this offer.

Meanwhile a less-than-massive post-Labor Day deal pipeline is thought to be in place, mainly comprised of a pair of high-profile acquisition deals that some market watchers had expected to come during the summer.

In early July, with dealers booking substantial losses as they syndicated committed debt financings at steep discounts, a syndicate of banks pushed an expected $5.4 billion of debt offerings backing the LBO of Tenneco Inc. by Apollo Global Management Inc. into the post-Labor Day period, sources say.

The launch of the Tenneco debt offerings, via Pegasus Merger Co., includes $3 billion of bonds and $2.4 billion of leveraged loans.

Then in mid-August dealers began canvassing the high-yield accounts in order to measure the market's willingness to take down $7.95 billion of bridged debt in their committed financing of the LBO of Citrix Systems Inc. by Vista Equity Partners and Evergreen Coast Capital Corp.

The debt, expected to hit the market after Labor Day, could come in an amount that is significantly less than that of the bridge loan, as dealers again are keen to avoid sustaining losses they suffered in those heavily discounted deals earlier in the summer.

While the headline amounts call for $4 billion of senior secured notes and $3.95 billion of senior unsecured notes, dealers may keep as much as $3.5 billion of the overall $7.95 billion bridge on their balance sheets in order to avoid those losses, sources say.

Details on the timing on the Tenneco/Pegasus deal and the Citrix deals remain to be announced.

To recap some of Summer 2022's steeply discounted trades:

• On June 15 Iris Holdings Inc. priced $400 million of 10% senior notes due 2028, backing the LBO of Intertape Polymer Group Inc. by Clearlake Capital, at 82;

• On June 16 Entegris Escrow Corp. (Entegris Inc.) priced $895 million of 5.95% senior notes due 2030 to support the acquisition of CMC Materials, at 90.832;

• On June 29 FTAI Escrow Holdings, LLC (Fortress Transportation and Infrastructure Investors LLC) priced $450 million of 10½% senior secured notes due 2027, supporting the spinoff of FTAI Infrastructure, at 94.585; and

• On July 20 Camelot Return Merger Sub Inc. priced $710 million of 8¾% senior secured notes due 2028, part of the financing for the buyout of Cornerstone Building Brands, Inc. by Clayton, Dubilier & Rice, at 90.296.

Post-Labor Day deal volume

Bank of America Securities (BofA) forecast $110 billion of issuance for the remainder of 2022 in a BofA Global Research report.

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

For the remainder of the year BofA expects issuance to be skewed heavily toward double B-rated issuers ($66 billion), with issuers from the energy sectors bringing $17 billion, financials $10 billion, telecoms $8 billion, health care $7 billion and capital goods $7 billion.

Ford active

In secondary trading, Ford’s 6.1% senior green notes due 2032 remained active on a light trading day with the notes remaining near their all-time lows.

The 6.1% notes remained on a 97-handle.

They were changing hands in the 97¼ to 97¾ context heading into the market close.

There was $10 million in reported volume.

Ford’s 6.1% notes have fallen more than 2 points on the week as the market rout deepened.

BB credits have been the hardest hit as the market revised its rate-hike expectations with the yield on the BB index widening more than 50 basis points over the past week and more than 100 bps since mid-August, a source said.

DISH improves

DISH’s senior notes were active and nominally improved even as the market turned south heading into the close, a source said.

DISH’s 5¼% senior secured notes due 2026 (Ba3/B+) rose 5/8 point to close Friday at 83 3/8, a source said.

There was $7.5 million in reported volume.

DISH’s 7 3/8% senior notes due 2028 (B3/B) were also nominally improved.

The notes were up ¼ point and changing hands in the 66 3/8 to 66 7/8 context heading into the close.

There was $4.5 million in reported volume.

$804 million Thursday outflows

The dedicated high-yield bond funds sustained $804 million of daily net outflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $695 million of outflows on the day.

Actively managed high-yield funds sustained $109 million of outflows on Thursday, the source said.

News of Thursday's daily flows trails a Thursday afternoon report that the combined funds saw a massive $5.04 billion of net outflows in the week to the Wednesday, Aug. 31 close, according to a report from Refinitiv Lipper.

That extended a two-week run of outflows to $9.6 billion, the largest seen in a two-week interval since March 2020 when global news headlines were firmly in the talons of the then-developing coronavirus pandemic, the market source said.

Indexes

The KDP High Yield Daily index sank 63 points to close Friday at 54.04 with the yield now 7.25%.

The index fell 30 points on Thursday, 27 points on Wednesday, 29 points on Tuesday and 32 points on Monday.

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

The ICE BofAML US High Yield index gained 44.4 bps with the year-to-date return now negative 11.199%.

The index fell 60.2 bps on Thursday, 42.3 bps on Wednesday, 48 bps on Tuesday and 58.9 bps on Monday.

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

The CDX High Yield 30 index plummeted 99 bps to close Friday at 98.16.

The index gained 40 bps on Thursday after falling 20 bps on Wednesday, 56 bps on Tuesday and 55 bps on Monday.

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

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