Primary gears up for final push; Carnival, CNX notes active; SM Energy higher, Transocean dips

By Paul A. Harris and James McCandless

San Antonio, Nov. 25 – The primary market was quiet heading into the Thanksgiving holiday, but is expected to hit the ground running in the post-Thanksgiving week, as the market anticipates $8 billion to $10 billion of issuance per week during the run-up to Christmas, sources say.

The high yield secondary focused on new issuance and energy names on Wednesday.

Newer notes from Carnival Corp. and CNX Resources Corp. were active but relatively unchanged on the day.

Oil and gas name SM Energy Co.’s issues pushed higher in the face of receiving a ratings downgrade.

Sector peer Transocean Ltd.’s paper was seen drifting amid a ratings upgrade.

Meanwhile, manufacturer United States Steel Corp.’s notes were on the rise as the company closed a deal of environmental bonds.

Last weeks of 2020

The primary market is expected to be ready to go when the market reconvenes from the holiday break on Monday.

However the interval in question may be brief, a bond trader pointed out, noting that there could be as many as three active weeks left in the 2020 primary market.

Activity could begin to tail off meaningfully in the third of those three weeks, which will conclude on Friday, Dec. 18, the trader said.

A syndicate source asserted that, “Market conditions currently are just too good for anyone to hold back.”

The new issue market has averaged $9.5 billion of issuance per week since the end of August, according to Prospect News data. That average even factors the anemic $1.25 billion that priced during election week.

The market appears poised to at least maintain that pace, the banker said.

Noting that bonds priced at par last week by Carnival were trading above 105 on Wednesday – bonds of a cruise line that watched its business model beached by the global pandemic – the syndicate official said that there is obviously a robust appetite for risk, right now, among investors.

Issuers will attempt to take advantage during the run-up to 2021.

The high yield market is known to wear one of two hats, the banker said.

One is its credit hat which focuses on the time-honored metrics of the market as they present themselves in the here and now. After all, it is “fixed income.”

The other is its equity hat, which can be focused on future expectations in the search for projected value, more in the manner of the stock market.

Right now there is no mistaking that the market is wearing its equity hat, the syndicate official said.

Carnival, CNX active

Carnival, trading in that 105 zone mentioned above, moved around some during the session to actually land at 106 bid by the end of the day.

The $1.45 billion deal priced Friday.

Canonsburg, Pa.-based independent oil and gas producer CNX Resources’ issue, on its first day of trading, was also active.

The 6% senior notes due 2029 closed at 101 bid.

The company priced an upsized $500 million of notes on Tuesday.

SM Energy higher

Elsewhere in oil and gas, SM Energy’s paper pushed higher, market sources said.

The 5 5/8% senior paper due 2025 picked up 3¾ points to close at 58 bid. The 6¾% senior paper due 2026 added 4 points to close at 55½ bid.

The Denver-based independent oil and gas producer’s paper was positive despite the ratings downgrade it received on Wednesday morning.

S&P Global Ratings slashed the overall rating for the company to SD from CCC+ while lowering a few issue-level ratings.

The agency attributed the downgrades to the name’s recently disclosed debt exchanges, which it considers a selective default.

Transocean drifts

Driller Transocean’s notes were moving on a downward track, traders said.

The 7½% senior notes due 2031 gave back ¾ point to close at 28 bid. The 11½% senior notes due 2027 dipped 2¾ points to close at 52¼ bid.

During Wednesday activity, the Steinhausen, Switzerland-based contract driller was another in the energy change to receive a ratings shift.

S&P issued upgrades, lifting the overall rating to CCC- from SD and similarly picked up some issue-level ratings.

The outlook is negative.

In a note, the agency said that it expects the company to engage in “additional distressed transactions” to wrangle with its $7.7 billion in outstanding debt.

U.S. Steel rises

Meanwhile, steelmaker U.S. Steel’s issues marked the day with a rise, market sources said.

The 6 7/8% senior notes due 2025 grabbed ½ point to close at 93 bid. The 6.65% senior notes due 2037 tacked on 1¼ points to close at 81½ bid.

On Wednesday, the Pittsburgh-based steel producer closed a $63.4 million issue of environmental improvement revenue bonds with a green bond designation, Prospect News reported.

The green bonds, issued through the Industrial Development Board of the City of Hoover, Ala, have a coupon of 6.375% and carry a final maturity of 2050.

$665 million Tuesday inflows

The dedicated high-yield bond funds had $665 million of net daily inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $625 million of inflows on the day.

Actively managed high-yield funds saw $40 million of inflows on Tuesday, the source said.

With only Wednesday's daily fund flows numbers remaining to go into the tally the combined funds are tracking $1.04 billion of net inflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes mixed

Three high-yield indexes moved in different directions.

The KDP High Yield Daily index added 8 basis points to close at 67.95 to wrap up Wednesday with the yield tightening to 4.82%.

The index shot up 18 bps on Tuesday and closed Monday up by 2 bps.

The ICE BofAML US High Yield index shed 1.2 bps with the year-to-date return now at 4.02%.

The index garnered 40.5 bps on Tuesday and 21 bps on Monday.

The CDX High Yield 30 index rose 31.05 bps to finish the session at 108.63.

The index grabbed 31.34 bps on Tuesday and spiked 51 bps on Monday.

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