Tenneco to test the waters; junk secondary closes with strong gains; DaVita falls post-earnings

By Abigail W. Adams

Portland, Me., Oct. 28 – The domestic high-yield primary market remained shuttered on Friday, marking a week with no issuance.

While the forecast for new deal activity is low as the market looks to the final two months of the year, the long-awaited Tenneco deal may be the one to reopen the primary, sources said.

The primary market has essentially been closed to riskier credits with several leveraged-buyout deals that tried to come to the market shut out, a source.

Pegasus Merger Co.’s $3 billion package of secured and unsecured notes backing Apollo Global Management, Inc.’s acquisition of Tenneco has been on hold since July.

However, Apollo announced on Friday its intention to close the deal by mid-November with news reports circulating that the junk bonds would soon be marketed to investors.

Banks have been forced to take large losses on committed financing deals made before credit markets were decimated by the surge in rates.

The last leveraged-buyout deal to price was Citrix Systems Inc./Tibco Software Inc.’s $4 billion issue of 6½% senior secured notes due 2029 (B2/B), which priced at 83.561 in late September.

However, the deep discount has helped bolster its performance in the secondary market with the 6½% notes continuing to gain in active trading on Friday.

The cash bond market saw another strong session on Friday with the market climbing another ¾ point, marking an almost 3-point gain on the week.

The market remained well bid with several offers-wanted-in-competition lists circulating as ETF buying continued to lift the space.

“They’re buying anything they can get their hands on,” a source said.

The market continued to rally as the market renewed hope of a long-awaited dovish pivot from the Federal Reserve.

However, economic indicators continue to come in mixed leaving room for continued volatility.

While rising rates have decimated returns and new deal activity in 2022, credit spreads have held up comparatively well.

The average credit spread during a recession is 550 basis point; however, high-yield spreads have held around 500 bps.

“Spreads aren’t that wide,” a source said. “There might be another leg down for credit.”

While future volatility may be in store, the risk-on sentiment was strong on Friday.

Carnival Corp.’s 10 3/8% senior priority notes due 2028 (B2/B+) continued to make strong gains in active trading with the notes adding 3 points on the week.

And while the overall market saw a strong week, earnings reports have come in mixed with several misses leading to outsized losses in capital structures.

DaVita Inc. was the latest company to disappoint with its 4 5/8% senior notes due 2030 (Ba3/B+) among the largest losers of Friday’s session.

Citrix on the rise

Citrix’s 6½% senior secured notes due 2029 were on the rise in active trading on Friday.

The notes climbed 1 point to an 87-handle.

They were changing hands at 87 5/8 in the late afternoon with the yield about 9%.

The notes saw renewed attention on Friday with $22 million in reported volume.

The $4 billion issue, which priced at 83.561 to yield 10% in late September, struggled to make it through the primary market.

However, its deep discount helped bolster its secondary market performance with the notes attractive and expected to appreciate as the market recovers, a source said.

Carnival gains continue

Carnival’s senior notes continued to post strong gains as ETF buying helped bolster the cruise line operator’s capital structure.

Carnival’s 10 3/8% senior priority notes due 2028, the last deal to clear the primary market, gained another ½ point to break above a 101-handle.

The notes were changing hands in the 101¼ to 101¾ context early in the session and continued to rise as the market gained strength.

They were trading in the 101½ to 102 context in the late afternoon.

There was $24 million in reported volume.

The notes have climbed 3 points since last Friday with the risk-on sentiment in the market buoying the notes.

The $2.03 billion issue priced at 98.465 to yield 10¾% on Oct. 18.

DaVita’s earnings

DaVita became the latest company to take a hit following earnings with the dialysis service provider’s 4 5/8% senior notes due 2030 among the largest losers of Friday’s session.

The 4 5/8% notes fell 2½ points to return to a 79-handle.

They were changing hands in the 79 to 79½ context heading into the market close with $24 million in reported volume, according to a market source.

The yield on the notes was about 8 3/8%.

DaVita’s notes were taking a hit following an earnings miss and guidance that came in well below analyst expectations, a source said.

Indexes

The KDP High Yield Daily index gained 17 points to close Friday at 51.62 with the yield now 7.62%.

The index was up 25 points on Thursday, 21 points on Wednesday, 24 points on Tuesday and 20 points on Monday.

The index posted a cumulative gain of 107 points on the week.

The CDX High Yield 30 index jumped 139 bps to close Friday at 99.93.

The index fell 21 bps on Thursday after rising 11 bps on Wednesday, 11 bps on Tuesday and 18 bps on Monday.

The index posted a cumulative gain of 168 bps on the week.

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