Junkland: Herbalife, Genesee & Wyoming price; GEO Group outperforms; Rakuten fades

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 5 – An active Friday session in the high-yield bond new issue market had two issuers place secured notes, selling a combined face amount of $1.5 billion.

Herbalife International Inc. and Genesee & Wyoming Inc. each priced deals with modifications to terms outlined earlier in the week.

Meanwhile, it was a flat day in the secondary space on Friday although the tone firmed following the latest U.S. nonfarm payrolls report.

While the report came in significantly hotter than expected, market players were reading between the lines with the deceleration in wage growth keeping hopes alive for a June rate cut.

While the market has remained strong despite drastically reduced expectations for rate cuts over the past few months, signs of selling pressure were starting to appear, particularly over the past few sessions, a source said.

The market has downwardly revised its rate cut expectations from six at the start of the year to two to three with the widely anticipated June start date being called into question after the macro data of the past week, the source said.

However, the market has remained laser-focused on new issuance and allocations with the majority of deals to price over the past week putting in strong aftermarket performances.

GEO Group, Inc.’s newly priced secured and unsecured tranches outperformed with the heavily oversubscribed offering shooting 2 to 3 points above the issue prices.

Dye & Durham Corp.’s newly priced 8 5/8% senior secured notes due 2029 (B1/B) maintained a healthy premium in active trade.

However, Rakuten Group Inc. 9¾% senior bullet notes due 2029 (BB) were fading on Friday after an initial strong performance in the aftermarket.

Friday primary

Herbalife International Inc. and HLF Financing Sarl LLC priced an upsized $800 million issue (from $700 million) of 12¼% five-year senior secured notes (Ba2/B+) at 97.298 to yield 13%.

The notes came wide to talk. Pricing climbed on a steep trajectory since the deal came into the market early in the week with initial guidance in the 11% area.

Later in the week, with interest in the deal heard to be less than robust, official talk surfaced, specifying a coupon of 11¾% and a yield of 12½%, whereupon orders for the bonds built to $1 billion, sources say.

Meanwhile Genesee & Wyoming Inc. priced a downsized $700 million issue of eight-year senior secured notes (Ba3/BB) at par to yield 6¼%, at the tight end of talk.

The issue size decreased from $1 billion, with proceeds shifted to the concurrent bank loan.

The yield came at the tight end of the 6¼% to 6½% yield talk. Initial talk was 6½% to 6¾%.

GEO Group in demand

GEO Group’s recently priced tranches outperformed in the aftermarket with the strong demand for the notes seen during bookbuilding following them into the secondary space.

GEO’s 8 5/8% senior secured notes due 2029 (B1/BB) and 10¼% senior notes due 2031 (B3/B) shot up another 1 to 1.5 points in heavy volume Friday after a strong break.

The 10¼% senior notes due 2031 were outperforming their lower-yielding, shorter-duration counterpart with the notes jumping to a 103-handle.

They were trading in the 103 3/8 to 103 5/8 context heading into the market close, a source said.

The 8 5/8% secured notes due 2029 added 1 point to close the day on a 102-handle.

They were trading in the 102½ to 102¾ context heading into the market close, a source said.

The offering played to strong demand during bookbuilding with both tranches 2x oversubscribed and buy-and-hold investors heavily involved in the deal, a source said.

While the deal was in demand during bookbuilding and shot higher in the secondary space, there were large swaths of the market that would not get involved in the offering due to the sector.

The private correctional facility operator has been shunned by some investors and underwriters due to ESG standards and concerns, a source said.

The aversion to the “incarceration trade” is largely responsible for the chunky yields GEO Group’s notes offered, the source noted.

There’s a sizable portion of the high-yield investment community that won’t get into a prison deal, which translates into a higher coupon for those who will, a portfolio manager said.

In terms of underwriters, it’s no coincidence that the same bank ran both the GEO deal, and the CoreCivic trade (the CoreCivic, Inc. 8¼% senior notes due April 2029), which came in March, the investor said.

GEO Group priced a $650 million tranche of the 8 5/8% notes and a $625 million tranche of the 10¼% senior notes at par on Thursday.

The 8 5/8% notes printed in the middle of yield talk in the 8 5/8% area; the 10¼% notes printed in the middle of yield talk in the 10¼% area.

Dye & Durham holds

Dye & Durham’s 8 5/8% senior secured notes due 2029 maintained the strong gains made on the break in active trade on Friday.

While the notes dipped early, they gained steam as the session progressed and closed the day largely unchanged.

The notes were trading in the par 7/8 to 101 1/8 context heading into the market close.

Dye & Durham priced an upsized $555 million, from $500 million, issue of the 8 5/8% notes at par on Thursday.

The yield printed at the tight end of yield talk in the 8¾% area.

The deal came to market with $1.2 billion in reverse inquiry and was playing to $2.3 billion in demand, a source said.

Rakuten fades

Rakuten’s 9¾% senior bullet notes due 2029 were coming in from their heights after a strong aftermarket performance the past two sessions.

While the notes maintained a healthy premium to issue price, they were down about ½ point to break below a 101-handle in heavy volume.

The notes were trading in the par ½ to 101 context heading into the close, a source said.

Rakuten’s offering was a ‘blowout’ with the 9¾% notes, which priced at par on Wednesday, playing to more than $11 billion in demand.

The notes traded as high as 101 3/8 on Thursday, a source said.

Fund flows

The dedicated high-yield bond funds had $297 million of net daily cash inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $261 million of inflows on the day.

Actively managed high-yield funds had $36 million of inflows on Thursday, the source said.

News of Thursday’s daily cash flows follows a Thursday report that the combined funds sustained $259 million of net outflows in the week to the Wednesday, April 3 close, according to market sources citing data reported by fund-tracker Refinitiv Lipper.

It was the fifth outflow in the past 22 weeks, the source said.

Indexes

The KDP High Yield Daily index was down 4 basis points to close Friday at 50.1 with the yield now 6.98%.

The index was unchanged on Thursday, up 2 bps on Wednesday, after falling 12 bps on Tuesday and 63 bps on Monday.

The CDX High Yield 30 index gained 16 bps to close Friday at 106.71.

The index dropped 26 bps on Thursday, was up 9 bps on Wednesday and down 26 bps on Tuesday.

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