Primary silence continues; Harvey has mixed energy impact; supermarkets retreat continues

By Paul Deckelman and Paul A. Harris

New York, Aug. 28 – The high-yield market – as widely expected – entered the final trading week of August on Monday with the primary market still becalmed and expected to stay that way heading into the upcoming Labor Day holiday break in the United States.

After a one-session hiatus on Friday, electric car manufacturer Tesla, Inc.’s recently priced issue of eight-year notes resumed its usual role as the only really active name among recently priced new issues, firming slightly on the day.

Energy names were mixed on Monday, even as crude oil prices fell in the wake of the devastation wreaked by Hurricane Harvey along the Texas Gulf Coast, home to a sizable chunk of U.S. oil and natural gas producing facilities; while sector bellwether California Resources Corp. was seen up, Chesapeake Energy Corp. was off. LNG processing and storage company Cheniere Corpus Christi Holdings LLC steadied after having taken a beating on Friday.

Supermarket names such as Fresh Market, Inc. and Ingles Markets Inc. remained under pressure Monday, as deep-pocketed retailing giant Amazon.com officially completed its purchase of rival grocery chain Whole Foods Markets Inc. – and immediately slashed prices on some items by as much as 43% in an effort to gain market share.

Statistical market performance measures were higher across the board for a third consecutive session on Monday; the indicators had strengthened all around on Thursday and then stayed firmer on Friday, after having been mixed over the previous four straight sessions and lower all around for one session before that.

Mixed Friday flows

The new-issue market, sidelined since Enova International Inc. priced a $250 million issue of seven-year senior notes (Caa1/B-) at par to yield 8½% on Aug. 18, remained on the sidelines Monday.

Liquidity in the high-yield market remained ultra-thin, as the market tracks through the final sessions counting down to the extended Labor Day holiday weekend, which gets underway following Friday's close.

Labor Day is the traditional summer-fall boundary in the high-yield market.

The daily cash flows of the dedicated high-yield bond funds were mixed on Friday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw a substantial $213 million of inflows on the day.

However actively managed high-yield funds sustained $295 million of outflows on Friday.

Tesla resumes active trading

With no new deals having come to market in the last 10 calendar days, some of the investor focus remained on the biggest of the recent new deals to get done –Tesla, Inc.’s 5.3% notes due 2028.

Those bonds have been actively traded most days since the Palo Alto, Calif.-based electric car manufacturer and power storage technology company priced that $1.8 billion regularly scheduled forward calendar issue at par back on Aug. 11, after upsizing the issue from an originally announced $1.5 billion.

Friday was the exception to the rule, with only about $4 million of the new Tesla paper traded – but things were more back to normal Monday, as a trader observed that Tesla had “big volume, relatively” – the only one of the recent issues to generate much investor attention. He saw the bonds “about unchanged” at 98 3/8 bid.

At another desk, another trader also saw the bonds going out at 98 3/8 bid, calling that a 3/16 point gain on the day, with over $13 million having changed hands.

After pricing, Tesla has mostly been struggling, gradually moving down to 97-handle territory, before finally seeming to bottom down there and turn slightly back upward last week, rising to around the 98 bid level and beyond.

Energy mixed amid Harvey carnage

Away from those recently priced deals, traders said that, surprisingly, energy names were not terribly active on Monday, even in the wake of Hurricane Harvey hitting the Texas Gulf Coast, home to much of the U.S. oil industry’s infrastructure.

“There was not a lot of play in oils today,” a trader remarked.

For one thing, while gasoline futures soared Monday on the commodities markets with the expected interruption of production there and the resulting supply squeeze, crude oil actually fell – in contrast to Friday’s rise.

West Texas Intermediate for October delivery plunged by $1.30 per barrel on the NYMEX, settling at $46.57; while crude supply will be impacted in the coming weeks and months until Gulf Coast production recovers, the shutdown of refineries will also crimp demand for oil, undercutting prices.

Sector bellwether credit California Resources Corp.’s 8% notes due 2022 were seen by a trader to be up ½ point, at 54 1/8 bid, with around $10 million of volume.

However, sector peer Chesapeake Energy’s 8% notes due 2027 lost more than ½ point to close just below 95 bid, with around $5 million traded.

Cheniere Corpus Christi Holdings – which had gotten whacked around on Friday, as some of the Houston-based liquefied natural gas company’s paper fell by more than 1 point as the name dominated the Most Actives list – appeared to steady, and even bounce back a little from those lower levels on Monday, though on reduced volume.

Its 5 1/8% notes due 2027 were up by 7/16 point at 102 bid, with $2 million traded, and its 5 7/8% notes due 2025 gained 3/16 point to end at 106¾ bid, but on only $1 million having traded.

Supermarket struggle continues

The official closing of Amazon.com’s takeover of upscale supermarket chain Whole Foods – and its slashing some prices there by as much as 43% – knocked the already struggling grocery sector lower on prospects for a destructive price war.

Whole Foods rival Fresh Market’s 9¾% notes due 2023 plunged by an additional nearly 2 points Monday to 76 bid, with over $9 million traded.

Ingles Markets’ 5¾% notes due 2023 lost ¾ point to finish at 98½ bid, also on over $9 million traded.

Indicators stay firm

Statistical market performance measures were higher across the board for a third consecutive session on Monday; the indicators had strengthened all around on Thursday and then stayed firmer on Friday, after having been mixed over the previous four straight sessions and lower all around for one session before that.

The KDP Daily High Yield Index jumped by 9 basis points to end at 71.93, after having risen by 3 bps on both Thursday and Friday. It was the index’s fourth straight gain.

Its yield narrowed by 3 bps to end at 5.25%, after having been unchanged on Friday.

The Markit CDX Series 28 High Yield Index pushed upward by around 1/32 point on Monday to close at 106 29/32 bid, 106 31/32 offered, its third straight rise; on Friday, it was up 1/8 point.

And the Merrill Lynch North American High Yield Index improved for a sixth straight session, gaining 0.103%, on top of Friday’s 0.094% advance.

The latest gain raised the index’s year-to-date return to 5.828% Monday, versus 5.718% on Friday, although it still remains well down from its Aug. 2 finish at 6.233%, its 2017 year-to-date peak.

© 2015 Prospect News.
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