Junk secondary closes quarter strong; Howard at a premium; Earthstone adds; Uniti jumps

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 30 – The Friday session failed to generate any junk bond new issue news.

The dollar-denominated junk bond primary market turned out $2.26 billion of issuance on the week, an altogether lackluster volume compared to the previous week’s $6.63 billion.

Friday brought the first half of 2023 to a conclusion having generated $93.6 billion of issuance, up a hefty 34%, year over year.

Notwithstanding that year-over-year improvement, 2023’s first half comes in 43% below average for first-half issuance ($162.7 billion) going back to and including 2010.

The biggest first half in that set came in 2021, at $295.5 billion.

First-half issuance has topped the $200 billion mark just twice, in 2021, and in 2020 ($211.5 billion).

The weakest first-half issuance came in 2022 at $70.1 billion.

The week ahead

The active forward calendar stood empty at Friday’s close.

The new issue market could remain dormant until after the July 4 holiday, sources say.

Although the market is scheduled to be open on Monday, new issue activity is unlikely, with some market participants taking Monday off, and a significant number of the rest expected to work from home, sources say.

Expect the primary market to reactivate, post-Independence Day, according to a portfolio manager who is looking for issuance activity from the energy services sector, in particular, during the week ahead.

Secondary

Meanwhile, the secondary space closed the final day of the second quarter on strong footing with buyers active in the space following the latest macro data.

The Personal Consumption Expenditures report released Friday reflected cooling inflation with the annual core PCE of 4.6% coming in slightly below the 4.7% forecast.

Consumer spending also showed signs of decreasing, a reflection of weakening in the economy.

The data comes after the latest GDP print which blew past analyst expectations by a large margin.

While the macro data continues to paint a confusing portrait of the economy with rate and recession debates continuing to rage, risk assets responded favorably to the data with equities and credit showing a strong session.

The cash bond market was lifted ¼ to ½ point with the CDX index surging as much as 1 point midsession before losing some steam into the close.

While liquidity was thinning ahead of the Independence Day holiday in the United States, new issues and large offers-wanted-in-competition lists kept the space moving.

Howard Midstream Energy Partners, LLC’s new 8 7/8% senior notes due 2028 (B3/B+) were putting in a solid performance in the aftermarket with the notes trading at a healthy premium to their issue price.

Earthstone Energy Holdings, LLC’s recently priced 9 7/8% senior notes due 2031 (B3/B+/B+) were on the rise under the strong market conditions after initially falling flat in the aftermarket.

Uniti Group LP’s 6½% senior notes due 2029 (Caa2/CCC) had strong buying interest on Friday with the notes the largest gainers of the session.

Howard Midstream at a premium

Howard Midstream’s new 8 7/8% senior notes due 2028 dominated activity in the secondary space with the notes trading at a solid premium to their issue price.

The notes were marked at par ¼ bid, par ¾ offered early in the session.

They traded as high as 101 but closed the day in the par 5/8 to par ¾ context, a source said.

There was $45 million in reported volume.

Howard Midstream priced an upsized $550 million, from $500 million, issue of the 8 7/8% notes at par on Thursday.

The yield printed in the middle of the 8¾% to 9% yield talk.

Earthstone is not flat

After a flat start in the secondary space, Earthstone’s 9 7/8% senior notes due 2031 were on the rise under Friday’s strong market conditions.

The 9 7/8% notes added ½ point to close the day in the 98 7/8 to 99 1/8 context, a source said.

There was $12 million in reported volume.

The notes improved over the past two sessions after initially falling flat in aftermarket activity.

Earthstone priced a $500 million issue of the 9 7/8% notes at 97.968 to yield 10¼% in a Tuesday drive-by.

Uniti in demand

Uniti Group’s 6½% senior notes due 2029 were in demand on Friday with buyers lifting the notes more than 3 points.

The 6½% notes opened Friday up 2 points and continued to climb into the close.

The notes closed Friday at 71 with the yield 14%, according to a market source.

With the economic data coming in strong, market players continue to target some badly battered credits that were offloaded when recession fears were high, a source said.

CCCs remain the standout performers in 2023.

The buying interest in the name may have been triggered by earnings optimism with the communications infrastructure real estate investment trust announcing Thursday that it would report earnings on Aug. 3.

Uniti may also be riding a wave of interest sparked by the Biden administration’s new $930 million investment in internet infrastructure.

Fund flows

Actively managed high-yield funds posted a hefty $700 million of daily cash inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

However, the high-yield ETFs had outflows slightly in excess of that number on Thursday: negative $716 million on the day.

News of Thursday’s daily flows follows a Thursday afternoon report that the combined funds sustained $730 million of net outflows in the week to the Wednesday, June 28 close, according to fund-tracker Refinitiv Lipper.

That was the first negative weekly flow in June, according to the market source.

In the 2023 first half, 14 of the 26 weekly flows were negative, the source said, adding that the year-to-date cash flows of the dedicated junk bond funds were negative $11.2 billion, heading into the close of the half.

Indexes

The KDP High Yield Daily index gained 16 points to close Friday at 50.61 with the yield now 7.33%.

The index fell 12 points on Thursday and added 13 points on Wednesday, 10 points on Tuesday and 6 points on Monday.

The index posted a cumulative gain of 33 points on the week.

The CDX High Yield 30 index gained 68 basis points to close Friday at 102.77.

The index gained 20 bps on Thursday, 17 bps on Wednesday and 49 bps on Tuesday after falling 29 bps on Monday.

The index posted a cumulative gain of 125 bps on the week.

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