In high yield, the week’s new issues tightened through price progression, with some being upsized.

“Risk assets could still fall off a cliff and people could pull deals, but at least now there is some momentum going in high yield’s favor,” said an analyst. “Investors built a little cash after selling into buyers last week, so they have room to play the new issue market.”

Tenet priced its $2bn SSN due 2030 at 6.125%, tight of its 6.25% initial talk. Demand was partly driven by a need for new HY healthcare paper after HCA Healthcare was upgraded to investment grade last month, sending some $10.8bn of debt out of the HY index.

Tenet is moving to a nearly all-secured capital stack, as proceeds will be used to refinance one of its last remaining SUNs, a 6.75% bond coming due in June 2023 with $1.748bn outstanding (we note that it’s a little unusual to see issuers letting their debt go current before refinancing).

Sattellite imaging company Maxar Technologies is also in the market with a $2.5bn debt package to refinance debt due in 2023. That syndication, split across bonds and loans, is expected to price next week.

Equitrans Midstream priced $1bn, split evenly across SUNs due in 2027 and 2030, to fund a tender offer. The deal was upsized and pricing tightened, despite concerns about the company’s Mountain Valley Pipeline project, which is behind schedule and over budget.

The pipeline, stretching from West Virginia to Southern Virginia, is now expected to be in service by the second half of 2023, as opposed to the end of 2022. It will cost some $6.6bn, up from previous estimates of $6.2bn, according to Fitch.

Animal feed maker Darling Ingredients also got a strong reception. It priced $750m of SUNs due 2030 at 6%, upsizing the offering from $500m and landing at the tight end of price talk.

In a positive sign for even more supply next week, most all of the new issuance this week traded up in price on the break. But subsequent issuers will likely pay hefty new issue concessions, sources noted.

“They have to, if they want to price par paper when the index trades at around 90 cents on the dollar,” said a buysider.

Price discovery

The loan market was not quite as subdued as high yield in the run-up to Memorial Day weekend, but this week’s slate of new deal launches still felt like a breath of fresh air.

Among the week’s early announcements were a $650m TLB from Imperial Dade, backing Advent International’s acquisition of a minority stake from Bain (syndication has already been accelerated) and Intertape Polymer’s $1.5bn TLB to fund its buyout by Clearlake.

On the larger side, automotive software provider CDK Global launched a $3.35bn TLB as part of the financing for its $8.3bn take-private by Brookfield Business Partners, which was announced back in April.

This deal in particular — currently talked at SOFR+475bps with a 50bps floor and a 95-96 OID — could be a good indicator for other LBO debt that is set to hit the market in the second half of the year, sources noted.

“Its end market is automotive, so it doesn’t have that sexy tech growth story, but it’s still software,” said a credit analyst. “Investors are shying away from anything cyclical or consumer discretionary, but software has been hanging in there.”

Still, the market is not exactly pricing as nicely as underwriters might hope. Just look at OIDs: Imperial Dade’s TLB is talked at 95, while Intertape Polymer is offering its TLB at 93-94.

There’s plenty more evidence of dysfunction. This week Mallinckrodt pulled its $900m refinancing TLB from syndication. Launched in late April, the deal was talked at S+600 with a 0.75bps floor at 95-96 OID — clearly that pricing isn’t enough anymore.

Others haven’t been officially pulled, but have gone quiet. Dayco got downgraded this week, with Moody’s citing its incomplete refinancing, while there has been no official update on bankers’ attempts to offload VXI Global Solutions’ buyout financing.

“Leverage multiples haven’t come down yet and we’re having to tweak more terms on pricing and OID for what we’re willing to underwrite,” said a senior levfin banker. “Banks are still open for business, but it’s a pain having to offload deals at a discount.”

LBOs past, present and future

Speaking of offloading deals, three blockbuster LBO financings — for Citrix, Nielsen and Twitter — continue to weigh on the market. They’re still awaiting syndication, but some of the slightly smaller buyout financings that launched this week could help move them along.

Banks have already taken steps to de-risk syndication, placing parts of the cap stack with private credit funds. Could the recent rally provide an opening for the remainder?

Money is returning to the market: high yield funds recorded a $4.77bn inflow this week up from a $236.2m outflow the prior week, according to Lipper data. Loans also turned positive with a $430m inflow this past week up from a $1.16bn outflow the week prior, according to EPFR data.

Effective yields have tightened by more than 60bp this week to 7%, and the yield to maturity on the S&P/LSTA US Leveraged Loan 100 Index is 68bp tighter to 5.57%. Underwriters may still blow through their caps, but this could help soften the blow.

“Everyone's kind of bracing themselves for those deals,” said a portfolio manager said. “They’re sitting on everyone's books and we're just wondering when that's going to come, and in what form that's going to make its way to the market.”

Of course, this recent rally could be short-lived. Equities are selling off again today, and one good week is unlikely to be a long enough window to syndicate these huge debt packages — especially given how uncertain investors seem to be about the economic outlook.

“The minute the market catches a bid you’ll start seeing those new issues coming to market,” said a portfolio manager. “We definitely have cash to put to work but we’re being pretty selective on stuff that’s really levered.”

Meanwhile, one sale process that initially looked like it would lead to an LBO has hit the ropes: according to 9fin sources, Reckitt Benckiser’s baby formula sale is effectively on hold as the industry grapples with a supply crisis (the company declined to comment).

As we reported back in April, the unit was expected to spark bids from financial sponsors due to its relatively large size. But it drew little interest amid the formula turmoil — CD&R was one of a small handful of bidders to submit non-binding bids, according to Bloomberg.