Studio City brings new paper; secondary junk improves but BWICs abound ahead of CPI report

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 9 – One dollar-denominated junk bond deal cleared the primary market on Wednesday, leaving the forward calendar empty.

Studio City Co. Ltd. priced an upsized $350 million issue of five-year senior secured notes (Ba3/B+) in a deal that played to heavy demand from Asian accounts and saw a strong break.

Meanwhile, the secondary space continued to improve on Wednesday as Treasury markets stabilized and equities extended their rally.

However, the tone in the high-yield market remained muted as market players awaited the latest Consumer Price Index report set for release on Thursday.

While opportunistic buying drove the market up about ½ point, Bids-Wanted-In-Competition lists still abounded with selling pressure lingering, a source said.

Many were awaiting the CPI report to determine if the rally had staying power.

New and recent issues continued to dominate the tape.

News Corp.’s 5 1/8% senior notes due 2032 (Ba1/BB+) were in focus with the notes jumping 1 point during Wednesday’s session.

Athenahealth’s (Minerva Merger Sub, Inc.) 6½% senior notes due February 2030 (Caa2/CCC/CCC+) continued their upward momentum with the notes up another ½ point alongside the broader market.

Studio City prices

Studio City priced an upsized $350 million issue (from $300 million) of 7% five-year senior secured notes at par, inside of price talk.

As Wednesday's sole dollar-denominated junk bond deal, the notes saw substantial demand from Asian high-yield investors, according to a bond trader in New York, who was marking the new Studio City 7% notes due February 2027 at 101 bid, 101½ offered, heading into the market close.

The Studio City trade left the active forward calendar empty.

However, there is a backlog of deals that should begin to roll out soon, given the recent stability in equities, a trader said on Wednesday.

A muted tone

While the risk-on sentiment was in full force in the equity markets on Wednesday with the Nasdaq Composite rallying over 2%, the tone in the high-yield market was much more muted, a source said.

While the market firmed with opportunistic buying driving up the market about ½ point, there remained plenty of BWICs in the space from exchange-traded funds.

The 10-year Treasury yield helped fuel the rally in risk assets with the yield slipping to 1.909% before closing the day at 1.947% following a 10-year Treasury note auction.

However, market players were eyeing the Consumer Price Index report set to be released on Thursday to determine if the rally would have staying power.

“People are nervous about the CPI tomorrow and the rate picture,” a source said. “The numbers have been terrible over the last several weeks; I can’t imagine they’ll be better tomorrow.”

In recent history, there has been a rally in the run-up to the release of economic data only to be followed by a sell-off.

And BWICs still outnumbered Offers-Wanted-In-Competition lists two-to-one, a source said.

Still, there was some opportunistic buying in the space, especially for some select higher-quality names.

News Corp. outperforms

News Corp.’s 5 1/8% senior notes due 2032 outperformed the market on Wednesday with the notes gaining about 1 point after a strong break.

The 5 1/8% notes were marked at 101¾ bid, 102¼ offered heading into the market close, a source said.

They were par ½ bid on the break.

News Corp. fit the profile of a higher-quality credit sought after by investors and the notes priced cheap compared to the BB index.

The news content provider priced a $500 million issue of the 5 1/8% notes at par on Tuesday.

The yield printed at the tight end of yield talk in the 5¼% area. The deal was heavily oversubscribed with an order book that exceeded $1.2 billion.

News Corp. was able to price a $1 billion issue at par with a yield of 3 7/8% in its debut appearance in the market in April 2021.

The 3 7/8% notes have traded on a 96-handle for much of February. They closed Wednesday at 96 3/8 with a yield of 4.47%.

athenahealth improves

athenahealth’s 6½% senior notes due February 2030 continued their upward momentum in active trading on Wednesday.

The notes gained about ½ point to close the session wrapped around 99.

The notes have gained about 1 point over the past two sessions as the broader market has firmed.

The notes traded as low as 97 3/8 on Monday.

The 6½% notes have been underwater since the $2.35 billion issue, which priced at par, broke for trade on Jan. 27.

$704 million Tuesday outflows

The dedicated high-yield bond funds sustained $704 million of daily net outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $456 million of outflows on the day.

Actively managed high-yield funds sustained $248 million of outflows on Tuesday, according to the source.

The junk bond asset class is extending a five-week run of outflows totaling almost $13 billion, the market source noted.

Indexes

The KDP High Yield Daily index gained 13 points to close Wednesday at 63.45 with the yield now 4.88%. The index was up 4 points on Tuesday after sinking 15 points on Monday.

The CDX High Yield 30 index gained 39 basis points to close Wednesday at 106.69. The index rose 18 bps on Tuesday and 4 bps on Monday.

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