Secondary quiet but firm; TreeHouse improves; Windstream at a premium

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 28 – The domestic high-yield primary market remained shuttered on Friday with the Aug. 24 week the lowest week for new deal volume since March.

Sources predict the lull in new deal activity may last until after the Labor Day holiday.

Meanwhile, the secondary space was equally quiet on Friday with the market closing out one of the slowest weeks of the year with light trading volume.

However, while quiet, the market remained firm with spreads hitting their tightest level since the sell-off in March.

TreeHouse Foods, Inc.’s 4% senior notes due 2028 (Ba2/BB-) remained active on Friday with the notes again on the rise.

Windstream Communications’ 7¾% first-lien senior secured notes due 2028 (B3/B) firmed in active trading over the past two sessions with the notes regaining a premium after launching the week below par.

Quiet primary

The primary market remained shuttered on Friday, and may be closed for summer, sources say.

Numerous participants on the buyside and sellside are taking advantage of the traditional lull which takes place in the run-up to Labor Day to use up some vacation time.

Liquidity in the market has fallen to a little more than 50% of routine daily flows, a trader said on Friday.

The week to Friday had $985 million of new issuance, the lowest issuance volume for any week since that of March 23, which put up a goose egg against a backdrop of extreme volatility in the global capital markets triggered by a global awakening to the onset of the coronavirus pandemic.

Since that time the new issue market – shorn up by a deluge of liquidity generated by gargantuan stimulus from the Federal Reserve Board – has seen a phenomenal weekly run rate of $12.2 billion, according to Prospect News data.

The biggest week during the 22-week interval in question was the week beginning June 15, which had $23.4 billion of issuance. That took place, of course, in the middle of the record-setting month of June 2020 which saw a total of $58.2 billion clear the primary market – the biggest month for issuance in its history.

Quiet but firm secondary

The secondary space was quiet over the past week with trading volume less active as the new deal pipeline dried up.

The aftermarket logged one of the lightest weeks of the year for trading volume, according to a BofA Global Research report.

However, while volume was muted, the secondary space firmed over the past week as outstanding issues were bid up amid the slowdown in new issuance, sources said.

Spreads tightened to 502, which was the lowest since the Covid-19 induced sell-off in March, according to the BofA report.

CCC credits led returns over the post week gaining 120 basis points through Wednesday’s close.

However, BB credits are still the index’s leading source of returns year to date.

Improved

TreeHouse’s 4% senior notes due 2028 remained active on Friday with the notes improving.

The notes gained ¼ point to close the day at 102, a source said.

The notes had been changing hands in the 101½ to 101¾ context since breaking for trade on Tuesday, sources said.

The offering from the food processing company was heavily oversubscribed with the demand seen during bookbuilding following the notes into the secondary space.

The notes reached the same level as IPL Plastics Inc.’s 6% senior secured notes due 2028 (B3/B), the only other issue to clear the primary market over the course of the week.

IPL Plastics’ 6% notes have been in the 101¾ to 102 context since breaking for trade.

Both issues were 6x to 8x oversubscribed during bookbuilding.

Demand for new issuance in general was huge with plenty of cash to put to work in the aftermarket, a source said.

Windstream above par

Windstream’s recently priced 7¾% first-lien senior secured notes due 2028 were one of the recent issues to benefit from the firmness in the aftermarket over the past week.

The 7¾% notes launched the week below par.

However, they were changing hands in the par ¾ to 101 1/8 context heading into Friday’s close, a source said.

The 7¾% notes have largely languished below par since pricing on Aug. 11.

While the notes saw an initial pop up to 101 after breaking for trade, they quickly dropped below par where they have remained until the past few sessions.

The notes were changing hands on a 98-handle as recently as last week.

The lackluster performance of the notes was attributed to their tight pricing and the general weakness in the market as the deluge of new paper put pressure on the secondary space.

Windstream priced a $1.4 billion issue of the 7¾% notes at par on Aug. 11 as part of its financing to exit bankruptcy.

Windstream’s is expected to emerge from Chapter 11 bankruptcy imminently, a source said.

Indexes gain

Indexes were on the rise on Friday with all posting cumulative gains on the week.

The KDP High Yield Daily index rose 5 basis points to close the day at 67.25 with the yield now 5.30%.

The index was up 9 bps on Thursday, 13 bps on Wednesday, 15 bps on Tuesday and 8 bps on Monday to post a cumulative gain of 50 bps on the week.

The ICE BofAML US High Yield index continued its upward momentum on Friday.

The index rose another 7.2 bps with the year-to-date return now 0.696%.

The index gained 8.6 bps on Thursday, was up 7 bps on Wednesday, 26.1 bps on Tuesday and 29.2 bps on Monday.

The CDX High Yield 30 index rose 14 bps to close Friday at 105.62. The index shaved off 2 bps on Thursday after rising 22 bps on Wednesday.

© 2015 Prospect News.
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