Arconic secured notes price; Tronox, Sunnova under pressure; funds lose $376 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 27 – The domestic high-yield primary market saw one deal price during Thursday’s session – Arsenal AIC Parent LLC’s downsized $700 million issue of 8% seven-year senior secured notes (Ba3/B+/BB+) backing the buyout of Arconic Corp.

Two deals remain on the forward calendar with pricing expected in the week ahead – KDC/One Development Corp. and KDC US Holdings, Inc.’s $500 million offer of five-year senior secured notes (B3) and Rain Carbon Inc.’s $450 million offering of six-year second-lien senior secured notes (B3/B).

Meanwhile, a strong open in the secondary market gave way to selling pressure, although with no clear cause for the market reversal.

The cash bond market was up ¼ point at the open after a GDP report that again blew past expectations and a Personal Consumption Expenditure report that came in below estimates.

While markets initially cheered the reduced recession risk and the end of the Federal Reserve’s rate hike campaign, they turned midway through the session.

“It just got incrementally worse,” a source said.

While up ¼ point at the open, the cash bond market ended the day down about 1/8 point.

Treasuries saw heavy selling with the 10-year yield rising 14 bps to close the day at 4.003%.

“That was a big move,” a source said.

While selling pressure took hold in the broader market, new issues continued to perform well.

And while the macro trade remained in focus, earnings-related news were the drivers of the largest movements in the space.

Tronox Inc.’s 4 5/8% senior notes due 2029 (B1/BB-) were under pressure in heavy volume after an earnings miss and weak guidance.

But Sunnova Energy Corp.’s 5 7/8% senior notes due 2026 (B1) claimed the title of the largest loser of Thursday’s session with the notes off more than 3 points following earnings.

Meanwhile, high-yield mutual funds and exchange-traded funds saw outflows of $376 million in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flow report.

Arconic prices

Arsenal priced a downsized $700 million issue of seven-year senior secured notes (Ba3/B+/BB+) at par to yield 8% on Thursday.

The deal, which came in support of the buyout of Arconic by Apollo and Irenic, was downsized from $900 million.

It blew through price talk to the tune of 25 basis points (final talk was 8¼% to 8½%). Early whisper had the deal coming as high as 9%.

Yet with all the squeezing, which essentially took the rate to 8% from 9%, the secured notes played to mammoth demand, according to a trader, who added that the word in the market held that there was in excess of $5 billion of orders in the book.

In addition to the downsizing, and the overall low volume of the high-yield primary market, demand for the Arconic deal was intensified by the participation of unconventional investors including private sponsors, the trader said.

After it broke, $70 million of the new paper traded in the context of 101¼ bid, 101¾ offered, said the trader, who added that the new notes faded to par ¾ bid, 101¼ offered heading into the close.

The bond portion of the financing also includes a tranche of senior unsecured notes that was downsized to $500 million from $725 million.

The unsecured notes are all being taken down by sponsor Apollo.

The calendar

Arsenal/Arconic left a modest active calendar in its wake.

KDC/One Development and KDC US Holdings are marketing a $500 million offer of five-year senior secured notes (B3) with initial talk of 9¾% to 10%.

And Rain Carbon is shopping a $450 million offering of six-year second-lien senior secured notes (B3/B) with early talk in the low-to-mid 12% area.

Both are expected to price in the week ahead.

There is no announced business for the final session of the July 24 week. And being that it’s a summer Friday, the session is apt to come and go bereft of drive-bys or deal announcements, sources said.

Tronox earnings

Tronox’s 4 5/8% senior notes due 2029 were under pressure in heavy volume after the chemical company reported disappointing numbers.

The 4 5/8% notes fell about 1 3/8 point to close the day at 82½, according to a market source.

The yield climbed to 8 5/8%.

There was $18 million in reported volume.

Tronox’s notes were under pressure after the company reported mixed earnings with revenue that missed expectations while EBITDA beat.

However, the market was responding to weak EBITDA guidance that came in below expectations, a source said.

Sunnova leads losses

Sunnova’s 5 7/8% senior notes due 2026 claimed the prize of the biggest loser of Thursday’s session after a large earnings miss.

The 5 7/8% notes sank 3½ points to trade in the 89¾ to 90¼ context, a source said.

There was $10 million in reported volume.

Sunnova reported a large earnings miss with revenue of $166.38 million versus the $194.58 million expected.

However, full-year guidance exceeded expectations, a source said.

Indexes

The KDP High Yield Daily index fell 26 points to close Thursday at 50.47 with the yield 7.43%.

The index gained 5 points on Wednesday after falling 5 points on Tuesday and 2 points on Monday.

The ICE BofAML US High Yield index added 3.2 bps with the year-to-date return now 6.653%.

The index shed 2.2 bps on Wednesday and 9 bps on Tuesday after gaining 13.7 bps on Monday.

The CDX High Yield 30 index fell 25 bps to close Thursday at 103.07.

The index gained 22 bps on Wednesday, fell 7 bps on Tuesday and added 3 bps on Monday.

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