High yield: Morgan Automotive prices; Jazz megadeal on tap; Charter flat; Emergent down again

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 20 – While only one deal cleared the domestic high-yield primary market on Tuesday, the forward calendar continued to build.

Morgan Automotive Group priced an upsized $700 million issue of eight-year senior notes.

Jazz Pharmaceuticals was the largest of the deals to join the forward calendar with the company beginning a roadshow for a $2.7 billion offering of eight-year senior secured notes (expected ratings Ba2/BB-/BB+).

Meanwhile, it was another soft day in the secondary space with the market down 1/8 to ¼ point, sources said.

However, volume was relatively light outside of recent issues.

While there were several bids-wanted-in-competition lists circulating the market, “it didn’t seem like the big ones were getting hit,” a source said.

Charter Communications, Inc.’s new 4½% senior notes due 2033 (B1/BB) fell flat in the aftermarket – a theme among several recent issues.

Longer-duration notes were also under pressure amid the general market weakness on Tuesday.

SCIH Salt Holdings, Inc.’s two tranches of senior notes were weaker on Tuesday with both issues dropping below par.

Outside of recent issues, Emergent BioSolutions Inc.’s 3 7/8% senior notes due 2028 continued their downward momentum on Tuesday as more negative headlines hit the company following a manufacturing mix-up that destroyed about 15 million doses of Johnson & Johnson’s Covid-19 vaccine.

Tuesday’s primary

The flow of news in the new issue market remained strong and steady, although just one dollar-denominated deal cleared the market on Tuesday.

Morgan Automotive Group, issuing via LCM Investments Holdings II, LLC, priced an upsized $700 million issue (from $650 million) issue of 4 7/8% eight-year senior notes (B2/BB-) at par, tight to talk.

It was heard to have played to a $3.9 billion book, according to a trader who added that the new 4 7/8% notes due 2029 popped to 102 bid, 102½ offered.

Meanwhile the active forward calendar saw a meaningful buildup. It now features $6.4 billion of business expected to clear ahead of the coming weekend.

Conspicuous among Tuesday's announcements, Jazz Pharmaceuticals began a roadshow on Tuesday for a $2.7 billion offering of eight-year senior secured notes (expected ratings Ba2/BB-/BB+), an acquisition financing in the market with initial guidance in the high 4% area (see related stories in this issue).

Right now, high-yield investors are focused on corporate earnings, sources say.

Earnings will factor into the vigor of the new issue calendar during the run-up to summer, a trader said on Tuesday.

Junk was off ¼ point on Tuesday, the trader noted, adding that ongoing pandemic concerns are weighing upon “return-to-normal” credits, such as those in the energy sector.

With the barrel price of West Texas Intermediate crude oil for June 2021 delivery down 94 cents (1.48%) at $62.44, junk bonds in the oil sector were down one point to two points on the day, the trader said.

Charter flat

Charter’s new 4½% senior notes due 2033 fell flat in the aftermarket.

While there were a smattering of prints below par, the notes were trading in a tight range of par to par 1/8 for the majority of the session, a source said.

The tight pricing, long duration and general weakness in the market were pointed to as reasons for their lackluster performance.

Charter priced $1 billion of the 4½% notes at par in a Monday drive-by.

Pricing came at the tight end of yield talk in the 4 5/8% area, which tightened from early guidance of 4¾% to 4 7/8%.

While the deal was heard to be playing to $3.5 billion of demand when early guidance circulated, many investors backed away from the deal as talk tightened, a source previously said.

Below par

SCIH Salt Holdings’ (Morton Salt) secured and unsecured notes dropped below par in active trading on Tuesday.

The 4 7/8% senior secured notes due 2028 (B3/B) were down about ¼ point. They were changing hands in the 99 5/8 to 99¾ context heading into the market close.

The 6 5/8% senior notes due 2029 (Caa2/CCC+) fell about ½ point to a 99-handle. They were changing hands in the 99 1/8 to 99 3/8 context heading into the market close.

The secured and unsecured tranches were wrapped around par on Monday.

Emergent down again

Emergent BioSolutions’ 3 7/8% senior notes due 2028 continued their downward momentum on Tuesday as more negative headlines hit the company after a manufacturing mix-up that destroyed up to 15 million Covid-19 doses.

The notes dropped another 1½ points to a 95-handle, a market source said.

They were changing hands in the 95½ to 95¾ context heading into the market close.

The notes have been under pressure alongside lower-coupon, longer-duration notes since early March, a source said.

However, they have been under extra pressure following a manufacturing mix-up at the company’s Baltimore plant that resulted in the destruction of up to 15 million doses of Johnson & Johnson’s Covid-19 vaccine.

The company was recently asked to halt production of new doses as the Food and Drug Administration investigates quality control issues at the plant.

House Democrats also announced on Tuesday they were launching an investigation into the circumstances that resulted in Emergent obtaining a federal contract to manufacture the vaccines.

Congressional committees are looking into the role a top Trump administration official played in helping Emergent obtain the contract, CNBC reported.

$1.57 billion Monday outflows

The dedicated high-yield bond funds sustained big net daily outflows of $1.57 billion on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw a whopping $1.33 billion of outflows on the day.

Actively managed high-yield funds sustained $240 million of outflows on Monday, the source said.

Indexes down

Indexes were in the red on Tuesday after a mixed start to the week.

The KDP High Yield Daily index fell 10 points to close the day at 69.55 with the yield now 3.87%.

The index rose 2 points on Monday.

The ICE BofAML US High Yield index dropped 17.4 bps with the year-to-date return now 1.634%.

The index shaved off 5.6 bps on Monday.

The CDX High Yield 30 index dropped 29 bps to close Tuesday at 109.4. The index was down 25 bps on Monday.

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