Junk surges to new heights post-Fed; Icahn, Bread Financial gain; Tenneco lifted

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 13 – The junk bond secondary space surged to new heights after the Federal Open Market Committee confirmed market expectations for rate cuts in 2024.

The new dot plot plan reflected 75 basis points of rate cuts in the coming year with chair Jerome Powell’s dovish tone propelling market exuberance.

“This is crazy,” a source said of the post-Fed rally.

“Holy Mackerel,” said another.

Treasury yields plummeted with the two-year closing Wednesday down 30 bps at 4.43% and the 10-year down 18 bps to 4.02%.

The cash bond market shot up 1 to 1½ points to set a new high for the year.

The CDX index also jumped to a fresh high and closed the day on a 105-handle after only yesterday hitting its highest level of the year on a 104-handle.

New and recent deals were lifted in the rally with the Icahn Enterprises LP/Icahn Enterprises Finance Corp. 9¾% senior notes due 2029 (Ba3/BB) and Bread Financial Holdings, Inc.’s 9¾% senior notes due 2029 (Ba3/BB-) each adding more than 1 point post-Fed.

Some badly beaten credits were also lifted with Tenneco Inc.’s 8% senior secured notes due 2028 (B1/B) outperforming the market.

Primary

The primary market was quiet on Wednesday, and the active new issue calendar remained empty.

Near pristine market conditions could generate a modicum of new issue activity through the remainder of the week, and possibly into the early part of the pre-holiday week ahead, a New York-based trader said.

A portfolio manager, conceding that market conditions for issuers could hardly be topped, said that if there is any primary market business to be done, between now and the end of the year, it is not being telegraphed.

Meantime the Ephios Subco 3 (Synlab AG) 7 7/8% secured notes issue which priced Tuesday is liable to be the final euro-denominated high-yield issue of 2023, market sources say.

Icahn rises

Icahn’s new 9¾% senior notes due 2029 made strong gains on Wednesday as the market rallied post-Fed.

The 9¾% senior notes opened the day on a par handle.

However, they were propelled to a 101-handle as buyers flooded the space.

The notes traded as high as 101 7/8 but settled into the 101¼ to 101¾ context heading into the market close, a source said.

There was $38 million in reported volume.

Icahn Enterprises priced a $500 million issue of the 9¾% notes at par in a Tuesday drive-by.

The yield printed on top of yield talk.

The refinancing deal sparked activity in Icahn’s capital structure which was lifted by the successful offering, a source said.

Icahn’s 6¼% senior notes due 2026 gained ¾ point in active trade to close the day at 94½.

The yield was about 8 7/8%.

There was $26 million in reported volume.

Icahn’s capital structure has been on a wild ride in 2023 with the company under pressure in late April after the release of Hindenburg Research’s short-seller report that levied several allegations against the company.

The 6¼% notes dropped 14 points in the wake of the report to trade down to an 84-handle.

While still below their trading level prior to the report’s release, they have recovered the majority of their losses.

Bread Financial gains

Bread Financial’s 9¾% senior notes due 2029 made strong gains on Wednesday after a relatively muted performance on the break.

The 9¾% notes added 1½ points to close the day on a 101-handle.

They were trading in the 101½ to 101¾ context heading into the market close.

There was $26 million in reported volume.

Bread Financial priced an upsized $600 million, from $500 million, issue of 9¾% notes at par on Tuesday.

The yield printed at the tight end of the 9¾% to 10% yield talk.

The deal was heard to be three-times oversubscribed.

Tenneco lifted

Tenneco’s 8% senior secured notes due 2028 outperformed the market on Wednesday with the badly battered notes lifted more than 2 points.

The notes opened the day on an 81-handle but were trading on an 83-handle by the end of the session.

They were changing hands in the 83¼ to 83¾ context at the market close, a source said.

There was $21 million in reported volume.

While the notes had a large boost on Wednesday, they still have yet to trade above their discounted issue price of 85.

Tenneco’s 8% notes have traded underwater since the $1.9 billion issue priced in August.

Fund flows

High-yield ETFs had $424 million of daily cash inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds sustained $25 million of outflows on the day.

The combined funds are tracking $850 million of net inflows on the week that will conclude with Wednesday’s close, according to the market source.

Indexes

The KDP High Yield Daily index was up 17 bps to close Wednesday at 49.75 with the yield 7.21%.

The index gained 10 bps on Tuesday and fell 7 bps on Monday.

The ICE BofAML US High Yield index gained 68.6 bps with year-to-date returns now 10.924%.

The index was up 17.1 bps on Tuesday after shaving off 4 bps on Monday.

The CDX High Yield 30 index shot up 113 bps to close Wednesday at 105.43.

The index was up 35 bps on Tuesday and 1 bp on Monday.

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