CPI rally fizzles; Chart’s junk bonds move higher; Kohl’s gains on fallen angel status

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 13 – Junk bond primary market conditions were perfect on Tuesday for an issuer that had to take a pass on a deal in October and wait for a better window.

It was a strong day in the secondary space on Tuesday with the cash bond market surging after a softer-than-expected Consumer Price Index report, although the market gave back some gains by the close.

The cash bond market was up 1 point after November’s CPI data sparked a buying frenzy.

However, the strong rally fizzled as the session progressed with the cash bond market closing up about 5/8 point, sources said.

There was some pullback as the market awaits the Federal Open Market Committee’s decision on Wednesday and comments from chair Jerome Powell.

While the market widely expects a 50 basis points rate increase on Wednesday, the Federal Reserve’s path forward in 2023 remains hotly debated, sources said.

Chart Industries, Inc.’s recently priced tranches continued their strong uptrend in active trading.

Kohl's Corp.’s 3 5/8% senior notes due 2031 (Ba2/BB+) made strong gains in heavy volume after becoming a fallen angel following the latest ratings downgrade.

Citrix Systems Inc./Tibco Software Inc.’s 6½% senior secured notes due 2029 (B2/B) were on the rise in heavy volume with the notes holding onto the gains made at the open.

Right time, right place

Market rallies in Europe and the United States trailing the release of a much tamer-than-expected Consumer Price Index (CPI) report for November could hardly have come at a better time for House of HR NV.

The Belgium-based human resources services provider, which was sent packing from the new issue market amid adverse market conditions in October, upsized its deal on Tuesday and launched it well inside of initial guidance.

The €415 million issue (increased from €300 million) of 9% seven-year senior secured notes (B2/B) launched at 92.826 to yield 10½%, at the tight end of yield talk in the 10 5/8% area, and well inside of initial guidance of 10¾% to 11%.

Proceeds will be used to partially repay the bridge loan drawn in connection with the financing for Bain Capital’s acquisition of a majority stake in House of HR.

The company was headed toward the finish line on Tuesday with a face amount of issuance that – with the €115 million upsize – was ultimately just €10 million shy of the €425 million deal that it postponed in October.

Meanwhile the dollar-denominated junk bond new issue market remained inactive on Tuesday, with no deals pricing and no announcements of new offerings.

As to the report that sparked what was initially a vigorous rally in risk assets, the Bureau of Labor Statistics said Tuesday that the November CPI rose 0.1% versus analysts' expectations of 0.3%.

Year-over-year inflation cooled to 7.1% (analysts had forecast 7.3%) from September's 7.7%.

The Federal Reserve Bank's Federal Open Market Committee, which is widely expected to raise its benchmark Fed Funds rate by 50 bps this week, has been telegraphing a more moderate, but perhaps lengthier approach to fighting inflation, heading into 2023, a bond trader recounted.

The markets take that to mean that the 75 bps increases that came during the autumn months of 2022 will give way to more market-friendly hikes of 50 bps or less, the source added.

Tuesday's CPI should reinforce to central bankers that the course they have lately been telegraphing is indeed the correct one, the trader asserted.

Chart adds some more

Chart’s recently priced tranches continued their strong uptrend in heavy volume on Tuesday.

Chart’s 7½% senior secured notes due 2030 (Ba3/B+) broke above a 101-handle after closing the previous day below.

The notes traded as high as 102¼ in intraday activity but came in as the post-CPI rally lost steam.

The notes were up about ½ point and trading in the 101½ to 102 context heading into the market close, a source said.

There was $27 million in reported volume.

Chart’s 9½% senior notes due 2031 (B3/B) continued to outperform their secured counterpart.

The notes jumped 1½ points to trade as high as 103½ in intraday activity.

However, they also came in alongside the broader market and were changing hands in the 102¾ to 103¼ context heading into the market close, a source said.

There was $15 million in reported volume.

Chart’s dual-tranche offering was the last deal to clear the primary market and the notes have made strong gains since breaking for trade.

Chart priced a $510 million tranche of the 9½% notes at 97.949 to yield 9 7/8% and a $1.46 billion tranche of the 7½% notes at 98.661 to yield 7¾% on Dec. 8.

Kohl’s climbs on fall

Kohl’s 3 5/8% senior notes due 2031 made strong gains in heavy volume after claiming fallen angel status after a Moody’s Investors Service downgrade.

The 3 5/8% notes rose 3 to 4 points.

They traded as high as 74½ in intraday activity but came in alongside the broader market and were changing hands in the 73½ to 74 context heading into the market close.

The yield on the notes fell to about 8%.

There was $26 million in reported volume.

The notes were on the rise as they switched to high-yield hands after Moody’s downgraded the company to junk.

Moody’s downgraded Kohl’s unsecured ratings to Ba2 from Baa2 due to the erosion of the company’s market position and the deterioration of its credit metrics, Prospect News reported.

S&P Global Ratings cut Kohl’s unsecured debt to BB+ from BBB- in mid-September.

Citrix holds gains

Citrix’s 6½% senior secured notes due 2029 were on the rise in heavy volume on Tuesday with the notes once again breaking above an 86-handle.

The 6½% notes were up ¾ point early in the session to trade in the 87 to 87¼ context, a source said.

While the notes came in slightly, they were able to hold onto the majority of their gains with the notes changing hands in the 86 7/8 to 87 context heading into the close.

There was $32 million in reported volume.

Fund flows

High-yield ETFs had $353 million of daily cash inflows on Monday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $29 million of outflows on Monday, the source said.

The combined funds are tracking $77 million of net inflows on the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index jumped 42 points to close Tuesday at 53.02 with the yield now 6.99%.

The index gained 6 points on Monday.

The ICE BofAML US High Yield index gained 66 bps with the year-to-date return now negative 9.12%.

The index rose 17.1 bps on Monday.

The CDX High Yield 30 index jumped 99 bps to close Tuesday at 101.97.

The index gained 18 bps on Monday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.