Uniti downtrend continues in junkland; Atlas Air falls; Medical Property gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 15 – The junk bond secondary space weakened further on Wednesday with the latest slate of macro data doing little to reignite the post-Fed rally fueled by expectations for a pause or decrease in rates.

A strong retail sales report on Wednesday combined with a still-hot labor market and a Consumer Price Index report that came in above expectations did little to support market optimism that the Federal Reserve had reached the end of its rate hike campaign, sources said.

However, indecision was on display with the market paring losses from a heavy open to close the day flat to down 1/8 point.

The downturn in the market continued to take its toll on recent issues.

The once strong Uniti Group LP, Uniti Fiber Holdings Inc., Uniti Group Finance 2019 Inc., CSL Capital, LLC’s 10½% senior secured notes due 2028 (B2/B/BB+) continued to trend lower with the notes breaking below a 99-handle in heavy volume on Wednesday.

Rand Parent, LLC’s 8½% first-lien senior secured notes due 2030 (Ba1/BB/BB+), backing the buyout of Atlas Air, continued to fall with the notes off as much as 1 point to trade on a 98-handle.

However, Medical Properties Trust Inc.’s senior notes (Ba1/BBB-) were the surprise outperformer on Wednesday with the health care real estate investment trust’s capital structure lifted by a new lease arrangement for its Utah properties.

Quiet

The high-yield new issue market has gone quiet in mid-February, and the active forward calendar has emptied, taking some market watchers by surprise.

The dollar-denominated primary market put up a goose egg for the week to Wednesday's close, whereas heading into the week there was an expectation that as much as $7 billion could come before Friday's close.

With investors who have cash to put to work in the new issue calendar deals are getting done in solid executions.

But issuers tend to be paying up.

Last Friday HanesBrands priced a heavily reversed, highly oversubscribed $600 million issue of 9% senior notes due 2031 (B1/BB-).

The company came to the primary market to raise cash in order address a couple of 2024 maturities, its 4 5/8% senior notes and its 3½% senior notes, and took them out with a bond that bears interest at 7/8% higher than the sum of the coupons of the two 2024 bonds that it is retiring!

Uniti’s downtrend

Uniti’s 10½% senior secured notes due 2028 again set new lows on Wednesday as the downtrend in the notes continued.

The 10½% notes fell ½ point to break below a 99-handle.

They were changing hands in the 98¾ to 99 context heading into the market close, according to a source.

There was $37 million in reported volume.

The notes had traded in the 101½ to 102 context until late last week when selling pressure settled into the market.

Atlas Air down

Atlas Air’s 8½% first-lien senior secured notes due 2030 continued to struggle on Wednesday with the notes off about 1 point.

The notes traded on a 98-handle in heavy volume for the duration of the session.

The majority of prints in the notes were in the 98 to 98½ context, a source said.

However, the notes were lifted to 99¼ heading into the market close, which may have been the result of underwriters supporting the notes.

The 8½% notes have lagged their issue price since the $850 million issue priced at par on Feb. 9.

“There were a lot of flippers in this one,” a source said.

Medical Properties outperforms

Medical Properties’ senior notes outperformed on Wednesday with the health care REIT’s capital structure lifted by a new leasing arrangement for its Utah sites.

Medical Properties’ 5% notes due 2027 jumped 3½ points to close the day at 86.

The notes were one of the most actively traded issues in the secondary space with $26 million in reported volume.

The 4 5/8% senior notes due 2029 jumped almost 4 points to 79½.

The 3½% senior notes due 2031 rose 2½ points to 71½.

The notes were trading with yields between 8½% to 8 7/8%, a source said.

The notes made strong gains on Wednesday after the company announced that it would be leasing its Utah portfolio to Catholic Health Initiatives Colorado thereby reducing its tenant concentration.

The market responded favorably to the news, a source said.

Medical Properties’ senior notes have been under pressure since late January after short-seller Viceroy Research released a report accusing the company of fraud.

Fund flows

High-yield ETFs sustained a hefty $536 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 had slight inflows of $13 million on the day, the source said.

Indexes

The KDP High Yield Daily index fell 11 points to close Wednesday at 52.39 with the yield now 7.31%.

The index was down 18 points on Tuesday and 9 points on Monday.

The ICE BofAML US High Yield index was down 17.1 basis points with the year-to-date return now 2.895%.

The index fell 16 bps on Tuesday after inching up 9.3 bps on Monday.

The CDX High Yield 30 index shaved off 2 bps to close Wednesday at 102.52.

The index shaved off 8 bps on Tuesday after gaining 36 bps on Monday.

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