Primary reasonably busy; secondary firms; Charles River gains; Alcoa in focus

By Paul A. Harris and Abigail W. Adams

Portland, Ore., March 9 – Four issuers brought a combined five tranches of dollar-denominated notes to raise a total of $2.4 billion on a reasonably busy Tuesday in the new issue market.

Meanwhile, the secondary space firmed on Tuesday as the sell-off in Treasuries eased.

Trading activity continued to center on new deals with the deals to price during Monday’s session performing well.

Charles River Laboratories International, Inc.’s two tranches of senior notes (Ba2/BB) were active with the notes improving alongside the broader market.

Alcoa Nederland Holding BV’s 4 1/8% senior notes due 2029 (Ba1/BB+/BB+) also gained in high-volume activity with the notes at times lagging their issue price but closing the day on a par-handle.

Tuesday primary

In Tuesday’s primary action, two of the four issuers came at the drive-through window.

Executions tended to be sharp, with two tranches printing inside of talk, two at the tight ends and one in the middle of talk.

In the eight tranches that cleared the high-yield market during the first two days of the March 8 week, the highest yield so far is 4¾%!

“These are not your father's junk bonds,” one market source quipped.

Mattel, Inc. came Tuesday with $1.2 billion of senior notes (Ba2/BB/BB) in a two-tranche drive-by that had both tranches price inside of talk.

The deal included $600 million of 3 3/8% five-year notes and $600 million of 3¾% eight-year notes.

It was heard to be three-times oversubscribed across both tranches.

Avis Budget Group, Inc. also drove through on Tuesday, pricing an upsized $500 million issue (from $350 million) of 4¾% seven-year senior notes (B3/B) at par, at the tight end of talk.

The Parsippany, N.J.-based car rental company was able to leverage the fact that it brought Tuesday's deal in a quick turnaround, which benefited the execution because the name was fresh in the minds of investors, a sellside source said.

On Feb. 17, slightly less than three weeks ago, Avis Budget priced a $600 million issue of 5 3/8% senior notes due March 2029 (B3/B) at par, also in a drive-by that came at the tight end of talk.

Calendar

In the wake of Tuesday's action, a hefty $5.8 billion active calendar remains (see related stories in this issue).

The lion's share of that comes from American Airlines, Inc. and its AAdvantage Loyalty IP Ltd. frequent flyer program: a $5 billion two-part amortizing senior secured bullet deal.

It features $2.5 billion of five-year notes with initial guidance in the low-to-mid 6% area and $2.5 billion of eight-year notes with initial guidance in the mid-to-high 6% area.

The trail for airline customer loyalty deals was blazed earlier in the pandemic by issuers including United Airlines Holdings, Inc.'s customer loyalty subsidiaries Mileage Plus Holding, LLC and Mileage Plus Intellectual Property Assets, Ltd., and Delta Air Lines Inc./SkyMiles IP Ltd.

Those deals played to massive demand, market sources said.

The challenge for American Airlines/AAdvantage is that the company comes with credit ratings that are inferior to those of its above-mentioned competitors, an investment banker said on Tuesday.

However what American gives up in terms of creditworthiness it may regain, in terms of timing, the banker said, noting that investors appear to be proceeding under the belief that the end of the pandemic is now near at hand, whereas United and Delta brought their deals in the teeth of the Covid-19 travel freeze.

The AAdvantage deal is set to be in roadshow mode through Wednesday.

Charles River gains

Charles River’s two tranches of senior notes improved in active trading on Tuesday.

The 3¾% senior notes due 2029 gained 3/8 to ½ point on Tuesday after a lackluster break the previous session.

The 3¾% notes traded as high as 101 in intraday activity.

However, they were changing hands in the par ½ to par ¾ context heading into the market close, a source said.

There was more than $43 million in reported volume.

Charles River’s 4% senior notes due 2031 gained about ½ point. They were changing hands in the par 7/8 to 101 1/8 context heading into the market close.

Charles River priced a $500 million tranche of the 3¾% notes and a $500 million tranche of the 4% notes at par on Monday.

The 3¾% notes priced tight to the 3¾% to 4% yield talk; the 4% notes priced tight to the 4% to 4¼% yield talk.

Alcoa on a par-handle

Alcoa’s 4 1/8% senior notes due 2029 closed Tuesday on a par-handle after dipping below their issue price in intraday activity.

The 4 1/8% notes traded as low as 99 5/8 in intraday activity, according to a market source.

However, the notes gained momentum as the session progressed and were wrapped around par ½ heading into the close.

The notes were active with more than $74 million in reported volume during Tuesday’s session.

Alcoa priced a $500 million issue of the 4 1/8% notes at par on Monday.

The deal was heard to be heavily oversubscribed and playing to $2.3 billion of orders.

Large Monday outflow

The dedicated high-yield bond funds had large daily outflows of approximately $1.3 billion on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $903 million of outflows on the day.

Actively managed high-yield funds saw $395 million of outflows on Monday, the source said.

Indexes mixed

Indexes were mixed on Tuesday after all launched the week in the red.

The KDP High Yield Daily index was down 5 points to close Tuesday at 69.19 with the yield now 4.16%.

The index was down 7 points on Monday.

The ICE BofAML US High Yield index was down 8.8 bps with the year-to-date return now 0.397%.

The index was down 4.5 bps on Monday.

The CDX High Yield 30 index gained 16 bps to close Tuesday at 108.20.

The index dropped 61 bps on Monday.

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