Standard Industries, Level 3 price; Western Global at a discount; MGIC Investment soars

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 7 – The domestic high-yield primary market continued to roll out new issuance on Friday with three deals clearing the market.

In drive-by action, Standard Industries Inc. priced a $1.1 billion issue and Level 3 Financing, Inc. priced an $840 million offering.

After almost two weeks in the market, Western Global Airlines LLC priced a downsized $350 million issue at a discount.

Market players expect an active week ahead, despite only one deal on the active forward calendar, with issuance expected to top $10 billion.

The primary market may roll out 10 deals during Monday’s session alone, a source said.

Meanwhile, the secondary space was largely unchanged on Friday after a slow grind tighter throughout the week, sources said.

New paper continued to dominate the tape after one of the heaviest weeks for new issuance on record.

While the majority of new deals have made gains in the secondary space, DaVita Inc.’s 3¾% senior notes due 2031 (Ba3/B+) fell flat in high-volume activity.

Warner Music Group's WMG Acquisition Corp.’s 3% senior notes due 2031 (Ba3/BB) were marked with a slight premium in active trading.

After a strong break, MGIC Investment Corp.’s 5¼% senior notes due 2028 (Ba1/BB+) were holding on to their large premium in active trading on Friday.

Friday’s primary

The lately torrid pace of the new issue market eased somewhat on Friday, although the market was certainly active.

There were two drive-by deals from speculative grade bond issuers well known to the market.

Standard Industries priced a $1.1 billion issue of 3 3/8% senior notes due Jan. 15, 2031 (Ba2/BBB-) at the tight end of talk.

The notes were trading with a healthy premium after freeing for trade and closed the day at par 7/8, a source said.

And Level 3 Financing priced $840 million of 3 5/8% senior notes due Jan. 15, 2029 (Ba3/BB/BB) in the middle of talk.

Meanwhile, in a deal that had been in the market since late July, Western Global Airlines priced a downsized $350 million (from $420 million) issue of 10 3/8% five-year senior notes (B3/B-/B+) at 98.625 to yield 10.738%.

The yield printed 174 basis points beyond the wide end of the 8¾% to 9% yield talk.

The deal underwent structural changes including an extension of call protection to the life of the bond, whereas it launched with just two years of call protection (see related stories in this issue).

Pace picks up

The $18.1 billion of junk that cleared the new issue market during the first week in August well more than doubled the previous week's $7.4 billion, as the primary emerged from the late July earnings blackout.

By way of comparison the busiest week in the record-setting month of June 2020 – the biggest month in the history of the market at $58.2 billion – was the week beginning June 15, which saw $23.4 billion.

Big week, big Monday forecast

Although the active new issue calendar contained only one deal heading into the weekend, the Aug. 10 week figures to a big one, sources say.

Issuance for the week could come to $10 billion plus, and it would be no surprise if month-to-date issuance hit $30 billion by the Aug. 17 close, a trader said.

There is an expectation that dealers could launch as many as 10 to 12 deals on Monday, alone...most of them surfacing in the form of debt refinancing deals.

Looking beyond the week ahead, given the strong technical backdrop of the market the remainder of the 2020 third quarter could be immense, with the month of September possibly seeing as many as 40 to 50 deals, the source said.

However, just one deal was stationed on the active calendar at Friday's close.

Bankrupt Windstream Communications is expected to price $1.4 billion of eight-year first-lien senior secured notes (B3/B) on Monday. Early guidance on the exit financing is in the 8¼% area.

DaVita flat

DaVita’s 3¾% senior notes due 2031 (Ba3/B+) fell flat in high-volume activity in the secondary space.

The notes were largely wrapped around par in active trading on Friday, according to a market source.

With more than $162 million in reported volume, the large liquid issue was one of the most actively traded during the session.

DaVita priced a $1.5 billion issue of the 3¾% notes at par on Thursday.

Pricing came at the tight end of the 3¾% to 4% yield talk.

While the 3¾% notes were largely stuck at par, DaVita’s 4 5/8% notes due 2030 were trading off in active trading.

The 4 5/8% notes shaved off about 5/8 point to close Friday at 106 5/8.

The notes were trading with a yield of 3½%, which was slightly lower than the yield on DaVita’s latest offering.

WMG at a premium

WMG’s 3% senior notes due 2031 were trading with a slight premium in the secondary space

The notes closed Friday at par ¼, according to a market source.

There was more than $27.5 million of the bonds on the tape by the late afternoon.

The New York-based entertainment company priced a $550 million issue of the 3% notes at par on Thursday.

Pricing came at the tight end of the 3% to 3¼% yield talk.

Initial guidance had the deal coming to yield in the low-to-mid 3% area.

MGIC holds

After a strong break, MGIC Investments’ 5¼% senior notes due 2028 were holding on to their large premium in high-volume activity on Friday.

The 5¼% notes were changing hands in the 102 1/8 to 102 3/8 context heading into the market close.

The notes had more than $99 million in reported volume during Friday’s session.

The 5¼% notes jumped to a 102-handle after freeing for trade on Thursday.

MGIC Investments priced an upsized $650 million issue of 5¼% notes at par on Thursday.

Pricing came tighter than talk for a yield in the 5½% area.

$431million Thursday inflows

The dedicated high-yield bond funds had $431 million of daily net inflows on Thursday, the most recent session for which data was available at press time.

High-yield ETFs had $301 million of inflows on the day.

Actively managed high-yield funds saw $130 million of inflows on Thursday, the source said.

News of Thursday's daily flows followed a Thursday afternoon report that the combined funds saw $4.389 billion of net inflows in the week to the Wednesday, Aug. 5 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

That's the eighth largest inflow on record, according to the market source who added that seven of the eight largest weekly inflows on record have occurred since late March 2020.

Net inflows since the week ending March 25 stand at $60.5 billion, the source said.

Assets now under management by the high-yield mutual fund base stand at a record $342 billion, the market source added.

Indexes

Indexes were mixed on Friday. However, all posted cumulative gains on the week.

The KDP High Yield Daily index rose 3 basis points to close Friday at 67.06 with the yield now 5.54%.

The index shaved off 13 bps on Thursday, rose 12 bps on Wednesday, 1 bp on Tuesday and 7 bps on Monday.

The index saw a cumulative gain of 10 bps on the week.

The ICE BofAML US High Yield index gained 3.8 bps with the year-to-date return now 0.35%.

The index gained 1.4 bps on Thursday, was up 28.8 bps on Wednesday, 0.3 bps on Tuesday and 21.58 bps on Monday.

The index saw a cumulative gain of 55.88 bps on the week and broke into positive territory for the first time since the end of February.

The CDX High Yield 30 index rose 7 bps to close Friday at 104.83.

The index gained 17 bps on Thursday, 165 bps on Wednesday and 13 bps on Tuesday after shaving off 2 bps on Monday.

The index added 177 bps on the week.

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