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After Deal-Free December, US High Yield Bond Issuance Takes Off

Following a rare month with no U.S. high yield debt issuance – which exacerbated a broader downturn in U.S. high-yield primary volume over the tail-end of 2018 – speculative-grade bond issuers are moving off the sidelines against a steadier financial-markets backdrop, capitalizing on pent-up investor demand for fresh prints and the resulting improvement in their pricing leverage, LCD data shows.

The week ended Jan. 25 was on track to produce the largest new-issue market weekly volume since early-August 2018, with more than $6 billion in supply slated to clear. The lion’s share—$4.2 billion—was priced in a single session, which saw each transaction upsized, and finalized with an issuer-friendly yield. A strong appetite for new debt helped reverse a wave of price widening recorded for the U.S. arm of the asset class during the final quarter of 2018, which saw buysiders and issuers alike proceed with caution among price slides in equities and crude oil, large outflows from high-yield funds, and increasing trade tensions.

Tenet Healthcare on Jan. 22 raised $1.5 billion of 6.25% secured second-lien notes due 2027 at the tight end of talk, after doubling the size of its deal, and Vistra Energy printed $1.3 billion (up from $700 million) of 5.625% notes due 2027, at the midpoint of circulated guidance. That same day, Albertsons Cos, boosted its pitch by $100 million, selling $600 million of 7.5% notes due 2026, and MGM Growth Properties placed $750 million of 5.75% notes due 2027, after upping the offering size from $500 million. Both transactions cleared at the tight end of guidance.

So far in January, no deals were printed at the wide end of price guidance or outside of the announced talk range, an indicator of healthy market demand. Six of the 10 deals were priced at the firm end of guidance, with the balance printed at the midpoint of talk.  

In contrast, in the fourth quarter, just 38% of the new issues cleared syndicate at the firm end of price talk ranges. Five issues priced at the wide end of talk or outside the announced range, accounting for nearly one-quarter of the total offerings. – Jakema Lewis/John Atkins

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