Junk market quiet after sell-off; CNX improves, Transocean improves; athenahealth falls

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 14 – The domestic high-yield primary market was dormant on Wednesday following Tuesday’s flight from risk assets which drove the cash bond market down more than 1 point.

However, all eyes are on the Picard Midco, Inc. $4 billion offering of 6.5-year senior secured notes backing the buyout of Citrix Systems Inc. with the deal experiencing some pushback on the covenant package.

Meanwhile, the secondary space was either side of unchanged in light volume on Wednesday following Tuesday’s beating.

There was little movement with many on the sidelines as the market continued to digest Tuesday’s hotter-than-expected inflation reading and its implications for the Federal Reserve’s rate hike schedule.

While the market is widely expecting a 75 basis points rate increase at the Federal Open Market Committee meeting next week, some are betting for a more extreme 100 bps increase, a source said.

“Nobody wants to do anything,” a source said.

Sources described the lack of action as either “wait-and-see mode” or “deer-caught-in-headlight mode.”

While volumes were light, CNX Resources Corp.’s recently priced 7 3/8% senior notes due 2031 (B1/BB/BB+) remained active with the notes nominally improved although they remained under water.

Transocean Ltd.’s senior notes were the big winners of Wednesday’s session with the offshore drilling contractor’s capital structure jumping following the announcement of an exchange.

athenahealth Group Inc.’s 6½% senior notes due 2030 (Caa2/CCC/CCC+) were among the market laggards with the notes falling more than 2 points although they continued to trade tight to the CCC index.

Citrix eyed

Following the throttling that junk took amid Tuesday's massive capital markets rout, with the index seeing its biggest single-day price drop since mid-June, the high-yield primary market took a header on Wednesday, sources said.

No deals were priced.

Dealers continue their endeavor to place the massive Picard Midco $4 billion offering of 6.5-year senior secured notes backing the buyout of Citrix Systems by Vista Equity Partners and Evergreen Coast Capital Corp.

The Picard/Citrix secured notes are being discussed with a 6½% coupon at discount of 88 to 90 to yield in the high-8% to 9% area, sources say.

There is pushback on what investors are seeing as an “aggressive” covenant package, sources said on Wednesday.

“What covenants?!” an investor quipped on Wednesday afternoon, when pressed for an explanation.

Recalling that the deal was struck during easier times in the leverage markets – the most glaring indication of which is the bond's 6½% coupon – the Picard/Citrix senior secured notes’ covenants reflect a time, not that long ago, when a swollen appetite for risk on the part of investors conferred the initiative onto issuers and sponsors, the source recounted.

Among the issues in contention is what bond investors see as outsized leeway that the present agreement would give to the company, should the business generate free cash, and a structure which would see more than half the assets in the hands of non-guarantor subsidiaries when the acquisition closes, the investor said.

The Picard/Citrix deal is set to price on Monday.

Meanwhile the Lottomatica SpA €350 million offering of five-year senior secured notes (B2/B) appears likely to price Thursday, the investor said, adding that the deal is heard to be going well.

The buzz in the market is that at initial guidance in the 10% area the Lottomatica deal is “cheap.”

Therefore, watch for that price to be squeezed, the investor advised, adding that it would not be terribly shocking were 50 bps of rate to end up being shaved off of that 10% initial talk.

CNX Resources improves

In secondary trading, CNX Resources’ 7 3/8% senior notes due 2031 were nominally improved in active trading on Wednesday although the notes remained under water.

The 7 3/8% notes rose about ¼ point with the notes trading in the 99½ to 99 7/8 context heading into the market close, a source said.

There was $15 million in reported volume, making the notes the most actively traded of Wednesday’s session.

While the notes were trading with a nominal premium after breaking for trade on Monday, they fell to a 99-handle amid Tuesday’s sell-off.

CNX priced a $500 million issue of the 7 3/8% notes at par in a Monday drive-by.

Transocean outperforms

Transocean’s senior notes were the major winners of Wednesday’s session with the company’s capital structure rising 1 to 3 points following an exchange.

Transocean announced Tuesday that it was swapping $73 million of its 0.5% exchangeable bonds due 2023 for $73 million of new 4.625% senior guaranteed exchangeable bonds due 2029 and $43.3 million in principal of its 7¼% priority guaranteed senior notes due 2025 for $38.9 million of the 4.625% senior guaranteed exchangeable bonds due 2029.

Transocean’s 7½% senior notes due 2026 jumped 3¼ points to close the day at 83¼ with the yield just shy of 14%, a source said.

The 8% senior notes due 2027 rose 2¼ points to close the day at 79¼ with the yield 14½%.

The 11½% senior notes due 2027 rose 1 3/8 points to close the day at 99½.

The company also sold an additional $188 million of the 4.625% exchange notes with proceeds to be used to repurchase an additional $13.8 million in principal of the 7¼% senior notes due 2025.

The exchange was a credit positive for the company that addressed its near-term maturities, a source said.

athenahealth falls

athenahealth’s 6½% senior notes due 2030 were among the largest losers of Wednesday’s session.

The notes fell 2½ points to close the day at 84 although they traded as low as 82½ in intraday activity, a source said.

The yield on the notes was about 9½%.

The notes were under pressure as recession concerns once again stressed the weakest corners of the market.

“Who wants to own CCC now?” a source said.

However, athenahealth’s notes continued to trade tight to the CCC index, which was trading with a yield of 15% on Wednesday.

$575 million ETF outflows

High-yield ETFs sustained $575 million of daily cash outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds were positive on Tuesday, posting $125 million of inflows on the day.

The combined funds are tracking $867 million of net inflows for the week that was set to conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index was down 16 points to close Wednesday at 53.99 with the yield now 7.29%.

The index fell 55 points on Tuesday after rising 4 points on Monday.

The ICE BofAML US High Yield index fell another 28.6 bps with the year-to-date return now 10.991%.

The index sank 99.2 bps on Tuesday after climbing 26.3 bps on Monday.

The CDX High Yield 30 index gained 20 bps to close Wednesday at 100.04.

The index plunged 162 bps on Tuesday after gaining 34 bps on Monday.

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