Radiology prices; secondary grinds tighter; AssuredPartners gains; Seagate flat

By Abigail W. Adams

Portland, Me., Dec. 4 – The domestic high-yield primary market saw one deal price during Friday’s session and three more join the forward calendar.

Radiology Partners, Inc. priced an upsized $800 million issue of five-year senior secured notes (B3/B-).

Meanwhile, Virtusa Corp. began marketing a $300 million offering of eight-year senior notes, LBM Acquisition, LLC kicked off a $390 million offering of eight-year senior notes, and Empire Communities Corp. announced plans to sell five-year senior notes (B-/B-) in a two-tranche dual-currency offering.

New issuance fell short of expectations over the past week and sources were mixed on how much new deal activity to expect in the run-up to the Christmas holiday.

Meanwhile, the secondary space continued to grind tighter on Friday with spreads tightening more than 20 points on the week with triple-C credits outperforming.

New paper continued to dominate the tape although with missed performances.

AssuredPartners Inc.’s 5 5/8% senior notes due 2029 (Caa2/CCC+) continued their upward momentum in high-volume activity following a strong break the previous session.

However, Seagate Technology plc’s recently priced tranches (Ba1/BB+/BB+) fell flat in the aftermarket with investors less than enamored with the pricing.

Friday’s primary

Radiology Partners priced Friday's sole high-yield deal, an upsized $800 million issue (from $650 million) of 5¼% five-year senior secured notes (B3/B-) that came at par, at the tight end of talk.

The deal went well, sources said.

The order book was five-times to six-times oversubscribed, according to a bond trader.

The new notes were wrapped around 102 heading into Friday's close.

Meanwhile there was a buildup in the active calendar heading into the weekend.

LBM Acquisition kicked off a $390 million offering of eight-year senior notes on Friday. Initial guidance has the notes coming to yield in the 7% area.

And Virtusa Corp. began marketing a $300 million offering of eight-year senior notes.

As with Radiology Partners, LBM and Virtusa are acquisition financings.

Meanwhile, Empire Communities Corp. plans to sell five-year senior notes (B-/B-) in tranches sized at $400 million and C$150 million. The notes in both tranches are in the market with early guidance of 7¾% to 8%.

Great expectations

Issuance for the November-December crossover week fell well short of market expectations, sources said on Friday.

The week had $5.49 billion in nine junk tranches, whereas the market anticipated that the post-Thanksgiving market would see $8 billion to $10 billion per week during the run-up to Christmas (one estimate, heading into Thanksgiving, was $12 billion to $13 billion per week during that interval).

The November 30 week's $5.49 billion lagged the $8.87 billion per week average seen since the beginning of September, according to Prospect News data.

Nevertheless, some market watchers continue to look for a pickup in new issue activity in the two weeks ahead.

However, a buyside source gave two reasons on Friday why a meaningful pickup might not materialize.

One reason is rates, the source said, noting that the 10-year Treasury bond, which was yielding 0.65% at the end of September, is now knocking on the door of 1%. Late Friday the 10-year was yielding 0.97%.

Higher-rated speculative-grade paper is sensitive to upward moves in Treasury rates.

As investors look at the spreads to Treasuries on recently minted bonds, they are beginning to wonder if they are being fairly compensated for the risks they are taking in the junk bond market, the source noted.

Also, investors are like most Americans: They're keen to see the year 2020 in the rearview mirror, the buysider said.

The high-yield index returned 3.09% for the year to the end of November, the source noted.

A return like that might not get you the big parade, but in a year that saw a lethal, global pandemic with its ensuing economic fallout, with new cases and related deaths continuing to soar, as well as a toxic U.S. presidential election in which the apparent runner-up has yet to concede defeat, it could be a lot worse, the source noted.

People may be motivated to book that return, and be disinclined to get in front of a lot more risk, as 2020 winds down, the buysider said.

Grinding tighter

Friday capped a strong week for the secondary space with credit spreads continuing to grind tighter.

The high-yield market, as a whole, tightened 23 bps to 410 over the past week with triple-C credits outperforming, according to BofA Global Research data.

BB credits narrowed by 16 bps to 292; B credits narrowed by 29 bps to 436 and CCC credits narrowed by 46 bps to 876.

“It’s been a strong week,” a source said. Optimism surrounding the rapid deployment of a Covid-19 vaccine helped fuel the rally in the secondary space.

AssuredPartners gains

AssuredPartners’ 5 5/8% senior notes due 2029 continued their upward momentum on Friday following a strong break the previous session.

The 5 5/8% notes were changing hands in the 102 to 102¼ context throughout Friday’s session.

The notes continued to move higher after trading up to 101¾ on Thursday.

In a heavily oversubscribed offering, the provider of insurance brokerage services priced an upsized $550 million issue of the 5 5/8% notes at par on Thursday.

Pricing came tighter than talk for a yield in the 5 7/8% area. Initial guidance was in the 6% area.

The deal was as much as 6x oversubscribed, sources said.

Seagate flat

Seagate Technology’s recently priced two tranches of senior notes fell flat in the aftermarket with investors less than enamored with the pricing.

Both Seagate’s 3 1/8% notes due 2029 and the 3 3/8% notes due 2031 were wrapped around par in active trading on Friday.

Market players were disappointed with the pricing of the notes. There is also a sentiment in the market that the company is more concerned with employee stock buybacks than its credit ratings, a source said.

While the unsecured notes are fully junk-rated, Seagate maintains an investment-grade rating from Moody’s Investors Service.

However, the hard disk drive manufacturer was downgraded to junk by Fitch Ratings on the eve of the pricing of the notes.

Fitch downgraded Seagate to junk and assigned a BB+ rating to the notes due to the company’s higher leverage, macro uncertainty and flat top-line guidance, the rating agency said in a press release.

S&P Global Ratings stated that the company’s leveraged share buybacks were credit negative in its rating of the notes.

Seagate priced a $500 million tranche of the 3 1/8% notes and a $500 million tranche of the 3 3/8% notes at par on Thursday.

The 3 1/8% notes priced at the tight end of talk in the 3¼% area. The 3 3/8% notes priced at the tight end of talk in the 3½% area.

Indexes gains

Indexes closed out a strong week with gains.

The KDP High Yield Daily index rose 15 points to close Friday at 68.44 with the yield now 4.58%.

The index was up 14 bps on Thursday, 8 bps on Wednesday and 14 bps on Tuesday after shaving off 1 bp on Monday.

The ICE BofAML US High Yield index shot past the 5% threshold on Friday.

The index gained another 21 bps with the year-to-date return now 5.039%.

The index was up 26.5 bps on Thursday, 15.1 bps on Wednesday and 23.3 bps on Tuesday.

The CDX High Yield 30 index rose 47 bps to close Friday at 109.57.

The index was flat on Thursday and rose 16 bps on Wednesday after shaving off 6 bps on Tuesday.

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