Four junk deals clear primary; market improves pre-CPI; Office Properties gains on merger

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 11 – An active Tuesday session in the high yield new issue market saw four single-tranche issuers price a total of $2.275 billion of dollar-denominated junk.

Meanwhile, there was an uptick of activity in the secondary space on Tuesday with buyers active heading into Wednesday’s Consumer Price Index report, a source said.

The cash bond market added ¼ point with ETFs circulating several offers-wanted-in-competition lists and real money accounts adding to positions.

While the market awaited the onslaught of new deals in the works to break for trade, topical news pushed Office Properties Income Trust’s 4½% senior notes due 2025 (Ba2/BB) into the forefront.

The notes made strong gains following news of the REIT’s acquisition of Diversified Healthcare Trust in an all-stock transaction.

Cloud Software Group Holdings Inc.’s 9% senior second-lien notes due 2029 (Caa2/B-) added to gains in active trade.

Active Tuesday

Of the four new deals in the primary market on Tuesday, one of the four issues was upsized.

Two of Tuesday's deals came as drive-bys, although none had been announced prior to Monday.

Executions were solid or better, with one deal pricing through talk, and one pricing at the tight end, while the remaining two come on top of – or in the middle of talk.

Cleveland-Cliffs Inc. priced a $750 million issue of seven-year senior guaranteed notes (Ba3/BB-/BB-) at par to yield 6¾% in a drive-by, according to market sources.

The yield printed in the middle of talk.

The book contained $1.2 billion of orders across 70 accounts, a trader said.

Churchill Downs Inc. priced a $600 issue of eight-year senior notes (B1/B+) at par to yield 6¾%, also in a drive-by.

The yield printed on top of price talk.

The deal was heard to have played to $1.15 billion of demand.

The remaining two transactions were announced on Monday.

Macquarie AirFinance Holdings Ltd. priced a $500 million issue of five-year senior notes (BB+/BB) at par to yield 8 3/8%, 12.5 basis points through talk.

The deal was heard to be playing to $1.5 billion of orders across 82 accounts.

And Knife River Holding Co., a wholly owned subsidiary of MDU Resources Group, Inc., priced an upsized $425 million issue (from $400 million) of eight-year senior notes (Ba3/BB) at par to yield 7¾%.

The yield printed at the tight end of talk.

The Knife River bonds, which played to $2.7 billion of demand, was trading at 101 1/8 bid, 101 5/8 offered, late Tuesday afternoon, according to a trader.

Of note, J.P. Morgan Securities LLC was the left bookrunner on all four of the deals that cleared the market on Tuesday.

It was the eighth session to top the $2.5 billion mark thus far in 2023.

REITs merger

Office Properties’ 4½% senior notes due 2025 made large gains on the heels of the announcement of the REIT’s acquisition of Diversified Healthcare Trust in an all-stock transaction.

The 4½% senior notes due 2025 rose 3½ points in active trade.

The notes were changing hands in the 87½ to 88 context heading into the market close.

The yield narrowed to 12 1/8%.

There was $28 million in reported volume.

While Diversified Healthcare has four outstanding issues, the notes were unchanged in light volume on the news.

While S&P Global Ratings placed Diversified Healthcare’s CCC+ issuer credit rating on positive watch as a result of the merger, it also placed Office Properties’ BB issuer credit rating on watch with negative implications.

“This is a weaker credit merging with a stronger credit,” a source said. “But all REITs are in pain.”

The merger ensures immediate debt covenant compliance and will enable the refinancing of 2024 debt maturities.

Citrix gains

Cloud Software’s (Citrix) 9% senior second-lien notes due 2029 continued to add to their gains in active trade.

The notes rose about 3/8 point to trade in the 83½ to 84 context, a source said.

There was $19 million in reported volume.

The 9% notes have made strong gains since the $3.84 billion issue priced at 79 to yield 14.047% on April 4.

Fund flows

The dedicated high-yield bond funds sustained $410 million of net daily cash outflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $355 million of outflows on the day.

Actively managed high-yield funds sustained $55 million of outflows on Monday, the source said.

The combined funds are tracking $179 million of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index gained 8 points to close Tuesday at 51.75 with the yield 7.11%.

The index fell 9 points on Monday.

The ICE BofAML US High Yield index gained 26.3 bps with the year-to-date return now 3.983%.

The CDX High Yield 30 index gained 32 bps to close Tuesday at 101.09.

The index rose 33 bps on Monday.

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