CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$3.0 billion and year to date flows stand at $45.4 billion.  New issuance for the week was $7.9 billion and year to date issuance is at $365.3 billion. 

(Bloomberg)  High Yield Market Highlights 

• PetSmart Inc. and Aston Martin are due to wrap up junk-bond sales Friday in what may be another volatile session amid rising coronavirus cases and fresh concerns about the outlook for technology giants.
• BC Partners sweetened terms on its PetSmart Inc. debt sale to split the company from Chewy Inc. by increasing the size of the bond portion, shifting funding from a concurrent loan offering, and raising pricing
• Books on the bond are due to close at 10:30 a.m. in New York. Commitments on the loan were extended to the same time
• Smyrna Ready Mix scrapped plans for a $315m loan sale and upsized its high-yield bond offering by the same amount to $830m
• The 8NC3 notes are expected to price in the range of 5.75%-6% after talk was widened from early discussions of 5%
• It’s the second loan to be pulled from syndication in lieu of bonds this week following MultiPlan on Oct. 27
• Aston Martin may also sell bonds, rated in the CCC tier, in euros and dollars
• Retail investors are fleeing the asset class, pulling $3 billion from high-yield during the week, the first cash exit since September
• HYG, one of the largest exchange-traded funds in the sector, posted outflows in the latest session, the fourth straight day of withdrawals
• Junk bonds have come under pressure with yields jumping 44bps week-to-date to 5.77%, the highest since Sept. 30. Credit risk is higher Friday, while stock futures are lower
• The broader index posted losses of 0.039% on Thursday, the fourth straight day of negative returns, putting the market on track for the biggest weekly loss since September
• While some borrowers have had to sweeten deals to attract buyers, new issues have seen robust demand in several cases

(Bloomberg)  JPMorgan Sees Junk-Bond, Leveraged Loan Issuance Falling in 2021

• High-yield bond gross issuance will total $375b next year, down 15% from the record of ~$425b expected in 2020, according to a report from analysts at JPMorgan.
• If that prediction holds, it would put 2021 among the biggest years for gross volume since 2012-2014, which averaged $374b
• Outlook assumes another year of “heavy refinancing activity,” JPMorgan analysts led by Peter Acciavatti said in the report
• Forecast sees issuance at $125b net of refinancing, a decline of 10%-15% from the ~$150b for this year
• Sees 30% fall in gross loan net volume to $275b from ~$400b this year, “amid little-to-no repricing activity”
• Sees net volume down 10% to $150b from ~$165b
• Historically low interest rates coupled with a baseline forecast for a continued recovery in the U.S. economy should lead to “somewhat more of the same” for capital markets in 2021, the analysts said
• Spread of the virus and release of a vaccine will continue to be elements of uncertainty as the unpredictability surrounding the election will lift
• “These conditions should produce only a modest increase in the M&A pipeline, whereas 2Q’s surge of general corporate purpose deals will not repeat itself,” according to the report
• Due to the “low state of yields” record refinancing wave will continue
• “That said January and February’s wave of loan re-pricings will also not repeat itself with an average dollar price $3 below where it stood in February,” the analysts said