High yield issuance continues at record blitz in 2021, as deals go below 3% threshold

The record-setting pace of 2020 high yield bond issuance has spilled into this year as the Federal Reserve continues to bolster markets with unprecedented liquidity. Amid one of the busiest first quarters in memory, T-MobileCentene and MDC Holdings priced bonds in the 2.25%-2.5% range, giving them the distinction of being the tightest non-investment grade deals in recent history, said four market sources.

As of Friday (12 February), year-to-date high yield issuance totaled USD 67bn via 94 deals, compared to USD 54bn of issuance through 64 deals for the same period last year, according to Debtwire data. That eclipses issuance over the same periods in 2019 and 2018, at USD 28bn and USD 21bn, respectively. 

On a monthly basis, January’s volume was bested only twice in the last three years — and that was in June and August of 2020, after the Fed first opened the floodgates with its bond and ETF buying programs.

“We already hit a record last year, and with yields tightening and rates as low as they are, issuers are coming to the market left and right. For funds that need to hit that sweet spot in coupons to get involved, there’s still money to be put to use,” one of the sources said.

Given the dynamics, 2021 issuance could easily outstrip last year’s record if the pace continues, sources said. It’s a continuation of momentum: the fourth quarter of 2020 had USD 87bn in volume compared to USD 76bn in 4Q19.

And the full year 2020 produced a whopping USD 428bn in high yield deals, blowing away the prior record of USD 257bn (2017) since Debtwire began tracking deal flow in 2013.

The average yield for high yield bonds fell to 4.09% this week, compared to 5.12% this time in 2020 and a historic high of 11.38% in March 2020, according to the ICE BofA US High Yield Index.

Nearly 200bps tighter than the index, T-Mobile in January priced Ba3/BB USD 1bn 2.25% senior unsecured notes due 2026 – which have gone on to trade above par. 

“The very idea that T-Mobile could issue such tight bonds and then Centene followed suit is insane. A high yield deal at less than 3% [was previously] unheard of,” one of the sources said.

Also in January, MDC Holdings placed Ba1/BB+ USD 350m 2.5% senior unsecured notes due 2031, which most recently traded at 99.375 to yield 2.572%, according to MarketAxess. Compare that to its cost of capital a year ago: in January 2020, MDC priced a similarly rated (Ba2/BB+) USD 300m senior unsecured note due 2030 at 3.85%.

And last week, Centene issued Ba1/BBB- USD 2.2bn 2.5% senior unsecured notes due 2031, which trade at 100.21 to yield 2.476%, according to MarketAxess. Comparatively, in February 2020, Centene issued USD 2bn senior unsecured notes due 2030 at 3.375%, with the same ratings as this year’s. The 3.375% notes traded today at 105.22 to yield 2.399%, according to MarketAxess.

Meanwhile, for issuers struggling amid the pandemic’s impact on their businesses and/or highly levered balance sheets, market conditions have provided a lifeline.

Case in point, NGL Energy had last year been on track to restructure because of its inability to refinance a credit facility maturing later this year, as reported. Instead, in January 2021, the company successfully issued B1/BB- USD 2.05bn 7.5% senior secured notes due 2026 to repay the near-term debt. The notes traded today at 103.33 to yield 6.529%, according to MarketAxess.

Market conditions were central NGL’s ability to price a first lien deal in the single digits. “For rescue financing deals in this market, 8% is the new 11%,” one of the sources commented during syndication — before pricing tightened to 7.5%.

And last week, Carnival Corp was able to issue B2/B+ USD 3.5bn senior unsecured notes due 2027 at 5.75% and par, upsized from its initial target of USD 2.5bn.

Carnival has sustained an effective shutdown of its business for nearly a year due to pandemic restrictions. In April of last year, before investors even knew the shutdown would drag on as long as it has, Carnival’s cost of capital was a nearly prohibitive 11.5% coupon at a 99 OID for USD 4bn senior secured notes due 2023 to fund general corporate purposes.

2021 Debtwire

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