Primary quiet; selling pressure continues in secondary; Medline hits new low; Vivint under pressure

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 11 – The high-yield primary market stood stock-still on Monday, as cash bonds fell ¾ of a point and the yield of the 10-year Treasury closed above 2¾%.

There is just one deal on the active forward calendar.

Oldcastle BuildingEnvelope (Oscar AcquisitionCo LLC) is marketing a $985 million two-part buyout deal comprising a $400 million tranche of seven-year senior secured notes (B1/B) with initial talk in the mid-to-high 6% area and a $585 million tranche of eight-year senior unsecured notes (Caa1/CCC+) with initial talk in the mid-to-high 9% area, on roadshow set to run through Wednesday.

The primary market might see some activity during the Tuesday-Wednesday period, a trader said.

Thursday, ahead of the extended Easter holiday weekend, is doubtful, the source added.

Meanwhile investors are clamoring for a calendar, a sellside source said on Monday afternoon.

There is a lot of cash on the sidelines due to coupon payments and bond redemptions, and investors would prefer to put it to work on a calendar, the source said.

With economists forecasting that the next leg is down, and the central bank telegraphing higher rates ahead, the new issue market is more likely to reward issuers who come now, and punish those who wait, the sellsider asserted.

Meanwhile, selling pressure continued in the secondary space with the market down ½ point to ¾ point as Treasury yields continued to climb.

The 10-year Treasury yield hits its highest level since 2019 on Monday and climbed to 2.792% before settling at 2.782%.

The ICE BofAML US High Yield index saw year-to-date returns again plummet well past negative 6% and CDX index hit a new low to close on a 103-handle.

Rate sensitive names and riskier credits again led losses in the space.

However, trading activity was abnormally light with many on the sidelines as the market awaits fresh inflation data on Wednesday and the onset of earnings, sources said.

Medline Industries’ secured and unsecured notes were among the most actively traded issues in the secondary space with the notes again hitting fresh lows.

Vivint’s (APX Group, Inc.) ¾% senior notes due 2029 (Caa1/CCC) also sank to new lows in active trading.

While Earthstone Energy Holdings, LLC’s recently priced 8% senior notes due 2027 (B3/B+/B+) continued to come in from the heights reached after breaking for trade, the notes continued to hold above par, despite the weakness in the market.

Fund flows

High-yield ETFs sustained $789 million of daily cash outflows on Friday, according to market sources.

It was the second consecutive big daily outflow from the ETFs, which saw $689 million of outflows on Thursday.

Those two daily outflows come on the heels of a record $775 million of inflows, which the junk ETFs saw in the week to last Wednesday's close, a market source said.

Meanwhile the actively managed high-yield funds saw $14 million of daily inflows on Friday.

Medline under pressure

Medline’s two tranches of senior notes again hit fresh lows on Monday with weaker credits hard hit by the selling pressure in the market.

Medline’s 5¼% senior notes due 2029 (Caa1/B-/B-) fell 2½ points on Monday.

The notes traded down to an 87-handle. They were changing hands in the 87 to 87¾ context heading into the market close, according to a market source.

The yield on the notes was about 7½%.

There was $31 million in reported volume.

The 3 7/8% senior secured notes due 2029 (B1/B+/BB-) were down 1½ points to trade in the 87¾ to 88¼ context heading into the close.

The yield on the notes was about 6%.

There was $27 million in reported volume.

The notes priced in late September as part of the largest leveraged buyout financing package since the global financial crisis.

While both tranches priced at par, they have spent most of their existence under water with riskier credit and rate-sensitive names the hardest hit as the market reprices in a higher rate environment.

Vivint under pressure

Vivint’s 5¾% senior notes due 2029 were also taking a hit alongside other CCC credits on Monday.

The 5¾% notes fell 3 points to close the day at 82¼, according to a market source.

The yield on the notes was now north of 9%.

There was $16 million in reported volume.

Earthstone comes in

Earthstone’s 8% senior notes due 2027 continued to come in from the heights reached after breaking for trade although they remained above par.

The 8% notes were down about ½ point.

They were marked at par 1/8 bid, par 5/8 offered early in the session.

They were changing hands in the par 1/8 to par 3/8 context heading into the market close.

There was $13 million in reported volume.

The oil and gas exploration company priced a $550 million issue of the 8% notes at par on April 7.

The notes traded as high as 101 after breaking for trade and closed last Friday at par 5/8 bid, par 7/8 offered.

While the notes were weak alongside the broader market on Monday, they priced cheap compared to the B index and are expected to improve on a stronger day for the market.

Indexes

The KDP High Yield Daily index sank 46 points to close Monday at 59.84 with the yield on the notes 6.03%.

The index posted a cumulative loss of 94 bps on the week last week.

The ICE BofAML US High Yield index was down 65.8 bps with year-to-date returns now negative 6.711%.

The index posted a cumulative loss of 126.4 bps the previous week.

The CDX High Yield 30 index sank 40 bps to close Monday at 103.87.

The index posted a cumulative loss of 118 bps on the week last week.

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