Primary goes quiet; secondary firm post-CPI; WeWork, Howard, FirstCash at premiums

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 10 – On the heels of the week's $6.6 billion burst of issuance – possibly the final hurrah of the 2021 primary market – the Friday session did not generate any news.

One deal remains on the forward calendar heading into the Dec. 13 week – debut issuer Skillz Inc.’s $300 million offering of five-year first-lien secured notes.

Meanwhile, the secondary space remained firm on Friday following the November Consumer Price Index report which recorded the fastest growth in consumer prices in nearly 40 years.

With the report largely falling in line with expectations and the 10-year Treasury yield falling below the 1.5% threshold to close at 1.48%, the secondary space continued to rally back from the volatility of the previous week.

New and recent issues continued to be the area where market players put their money to work.

WeWork Cos. LLC/WW Co-Obligor’s 5% senior notes due 2025 (CCC+/CCC-), Howard Midstream Energy Partners, LLC’s 6¾% senior notes due 2027 (B3/B), and FirstCash, Inc.'s new 5 5/8% senior notes due 2030 (Ba2/BB) were all trading at premiums to their issue prices.

Southwestern Energy Co.’s 4¾% senior notes due 2032 (Ba3/BB/BB) also continued to gain in active trading with Friday a strong day for energy.

The 5% mark

Headline news about the coronavirus, inflation, the vagaries of economic recovery and geopolitics, which has buffeted global capital markets in recent weeks, also caused the return of the high-yield index to gyrate notably, a New York bond trader recounted on Friday.

Marking the BofA Merrill Lynch US High Yield Master II Index year-to-date return at 4.6% on Friday morning, five basis points lower from Thursday, the trader said that the index's return has nonetheless staged a remarkable rally from its low of 3.41% on Nov. 29.

In early November returns shot above 5%, as the index staged a colossal 38 bps rally on Nov. 5, which took it to 5.1% from 4.72% in one day.

It then continued to advance, topping out at 5.27% on Nov. 9.

Noting that the 2021 new issue calendar appeared to be all but played out, the trader expressed the belief that the stage is now set for high-yield investors to shift their focus to the secondary market.

Should that occur against a reasonably supportive backdrop in global health, the economy and geopolitics, it is entirely possible that the yearly return of the index can once again top the 5% mark during the run-up to 2022, the trader said.

With respect to that calendar, only one deal remained in the market at Friday's close.

Skillz Inc., a San Francisco-based online game competition platform, is on the road with its debut deal, a $300 million offering of five-year first-lien secured notes. Initial guidance has it coming at a discount to yield 11%, with pricing expected Wednesday.

WeWork’s resale

In the secondary market for recent deals, WeWork’s deeply discounted 5% senior notes due 2025 were trading at a premium to their issue price in the aftermarket.

The notes were marked at 86½ bid, 87 offered early in Friday’s session and continued to trade in that context as the session progressed, sources said.

While volume was light, the commercial real estate company’s 7 7/8% senior notes due 2025 continued to pare losses from its tumble earlier in the week.

The 7 7/8% notes continued to trade in the 95 to 95½ context on Friday.

The notes dropped 2 points to 94½ after the 5% note reoffering was announced on Tuesday.

WeWork’s 5% senior notes due 2025 priced with a discounted issue price of 89.989 for a yield of 9¾% on Thursday.

The $550 million offering was a resale of the notes from a SoftBank affiliate.

SoftBank was offloading the notes, which were part of its $2.2 billion rescue package to the controversy-ridden commercial real estate company following its failed initial public offering and departure of former chief executive officer Adam Neumann in 2019, Bloomberg reported.

WeWork achieved its ambitions of going public through a $9 billion SPAC deal which was completed in October.

The company’s stock was strong on debut but has been under pressure recently with the company announcing a material weakness and plans to reinstate financials related to its SPAC deal.

At a premium

Other recent deals continued to put in strong performances in the aftermarket.

Howard Midstream’s 6¾% senior notes due 2026 continued to trade on a 101-handle with the notes changing hands in the 101½ to 101¾ context heading into the market close, according to a market source.

There was $12.5 million in reported volume.

The energy infrastructure company priced a $400 million issue of the 6¾% notes at par on Thursday.

The yield printed at the tight end of the 6¾% to 7% yield talk.

The deal was heard to be playing to $1.5 billion of demand, a trader said.

FirstCash’s 5 5/8% senior notes due 2030 were also putting in a strong performance with the notes marked at par ¾ bid, 101¼ offered.

There was more than $20 million in reported volume.

FirstCash priced an upsized $550 million, from $525 million, issue of the 5 5/8% notes at par on Thursday.

The yield printed at the tight end of both yield talk and initial guidance in the 5¾% area.

Southwestern gains

Southwestern Energy’s 4¾% senior notes due 2032 continued to gain in active trading with the notes climbing to a 102-handle.

The notes were changing hands in the 102 3/8 to 102 5/8 context heading into the market close.

The notes were trading in the 101 5/8 to 102 context on Thursday.

The natural gas exploration company priced a $1.15 billion issue of the 4¾% notes at par on Wednesday.

Natural gas futures were strong on Friday alongside crude oil futures.

Natural gas futures settled at $3.93, an increase of 11 cents or 1.03%.

Thursday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Thursday, according to a market source.

Actively managed high-yield funds saw healthy or better inflows of $510 million on the day.

However high-yield ETFs sustained $294 million of outflows on Thursday, the source said.

News of Thursday's daily flows trails a Thursday report that the combined funds saw $1.26 billion of net inflows in the week to the Wednesday, Dec. 8 close, according to Refinitiv Lipper.

The year-to-date cash flows of the dedicated junk bond funds stood at negative-$16.5 billion on Friday, the market source said.

Thursday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Thursday, according to a market source.

Actively managed high-yield funds saw healthy or better inflows of $510 million on the day.

However high-yield ETFs sustained $294 million of outflows on Thursday, the source said.

News of Thursday's daily flows trails a Thursday report that the combined funds saw $1.26 billion of net inflows in the week to the Wednesday, Dec. 8 close, according to Refinitiv Lipper.

The year-to-date cash flows of the dedicated junk bond funds stood at negative-$16.5 billion on Friday, the market source said.

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