Primary high-yield market
Geopolitical concerns again weighed on financial markets, further softening the tone for risk assets. Thursday’s close marks the fifth consecutive print-free session for U.S. high-yield bonds, potentially placing the current week on track for a zero issuance sum. Completed supply Feb. 1-Feb. 17 totals $8.3 billion, down from $23.8 billion during the 2021 comparable period. Year-to-date volume at $32.4 billion now reflects a 57% decline year over year.
Among the recent additions to the bond shadow calendar, S&P Global Ratings today weighed in with an assessment of debt financing plans connected to Entegris, Inc.'s purchase of CMC Materials. The BB+ rating on the company, as well as the respective BBB- and BB ratings on its senior secured credit facility and senior unsecured notes have been affirmed. Ratings said it estimates leverage will be near 4x at closing but projects a decline to mid-2x by the end of 2024, based on strong demand fundamentals in the semiconductor supply chain and the company's track record of integrating acquisitions and paying down debt using its free cash flow.
The company is currently shopping an approximately $2.5 billion term loan for the acquisition and is also eyeing the placement of other secured and unsecured debt. Entegris announced in December 2021 that it was acquiring CMC in a cash-and-stock deal with an enterprise value of $6.5 billion.
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Secondary high-yield market
Cash bonds held their ground as stocks slumped to new lows on escalating geopolitical tensions, with losses generally limited to around half a point in busy trading. That's as another $3.55 billion exited U.S. high-yield retail funds, marking a sixth straight week of heavy redemptions, according to Lipper. The CDX HY 37 offered a better reflection of the broad-market slide, with indications slipping a quarter of a point to bracket 105.50 at the close.
Bonds backing CommScope Holding Co. Inc. and Colgate Energy Partners were among the few issues posting notable gains on the day, the former following a fourth-quarter earnings beat and the latter on buyout chatter. CommScope's 5% notes due 2027 jumped 2.625 points in light trading, to probe 88, after the company reported a rise in sales despite component shortages that cost it $1 billion in 2021. The more active 7.125% senior notes due 2028 were up 2.625 points on the highs, at 93.5, on what traders described as a combination of real-money action and short covering.
Colgate Energy's 5.875% senior notes due 2029 surged 4 points, to a six-month high of 103.875, on a Bloomberg report that the company is considering an offer from an unnamed private equity bidder that could net Colgate and its backers, up to $5 billion. NGP Energy Capital and Pearl Energy Investments have been prepping the shale oil producer for an IPO that would represent the first float of a U.S. oil producer since 2018.
Extending generic losses were CSC Holdings' most actively traded 4.625% notes due 2030, which were 2.375 points lower on the day and 3.5 points lower on the week, at 84, after parent Altice USA reported underwhelming revenue and EBITDA in its fourth-quarter earnings report. Management also said it would accelerate a fiber optic cable rollout in a move that could divert funds from efforts to reduce leverage of 5.4x.
High-grade market
Following on earnings presentations this week, Amgen Inc. staved off a shutout on the primary markets today, pricing $4 billion of notes across four tranches. After a no-print Monday session, issuance for the week now stands at $31.075 billion (ex-SAS and hybrids), or nearly $10 billion more than the midpoint syndicate consensus for the full week.
The pricing came as the CDX IG 37 widened nearly three basis points on the session, erasing firm closes over the three previous days, and returning the contract to the 68 bps area, a high since September 2020.
Amgen's decision to test the marketplace today showcases the tension for issuers eager to fund more aggressive financial policy in 2022, via debt-financed M&A and buybacks, and the grim reality of rising borrowing costs. Amgen last week announced plans to buy back $6 billion of its shares in the first quarter, which is more than the $5 billion it repurchased all last year. (A 2029 tranche of the offering further backed the company's green projects.)
Included in Amgen's four-part structure is a $1 billion issue of 4.20% 30-year bonds, priced at T+190. When Amgen last tapped the U.S. markets, on Aug. 5, 2021, its $5 billion offering that day included lower-coupon 3.00% long 30-year bonds (due Jan. 15, 2052), priced at a tighter T+115 initial spread reoffer.
Double-digit spread concessions for new issues are becoming the norm for the first time since May 2020, trade data show. Amgen printed the new 4.20% coupon for 2052 bonds as that outstanding 3.00% Amgen 2052 issue traded today at T+170, or at roughly 4.00%. As well, the existing issue stands roughly 30 bps wider since Amgen last week announced the aggressive share-repurchase play.
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