Primary quiet; California Resources, Transocean pare losses; Altice gains post-earnings

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 21 – The high-yield primary market was quiet on Wednesday and trading volume was light in the secondary space during the pre-Thanksgiving session.

While new deal activity may reactivate in the Nov. 26 week, it largely depends on market conditions.

Although volume was light, there was a reprieve in the secondary space from the brutal sessions seen over the past week and a half with the market closing the day up about ½ point.

Several names posted gains during Wednesday’s session.

California Resources Corp.’s 8% senior secured second-lien notes due December 2022 were again active in the secondary space with the notes paring their losses from the previous session.

Transocean Inc.’s junk bonds were also rebounding from their lows during Tuesday’s session.

Intelsat Jackson Holdings SA’s 8½% senior notes due 2024 reversed their downward trajectory during Wednesday’s session, closing the day up 1½ points.

Altice SA’s junk bonds also saw gains of up to 2 points during Wednesday’s session after Altice Europe reported third-quarter earnings.

Quiet primary

The primary market remained quiet on Wednesday, as is customary for an abbreviated pre-Thanksgiving session.

New issue activity in the high yield market might resume in the week ahead, according to market sources in Europe and the United States.

However in order for that to happen volatility in the global capital markets will have to subside meaningfully.

Sticker shock has been seizing issuers across the credit spectrum, a source remarked, adding that companies intending to raise cash by issuing bonds are going to have to recalibrate the costs of capital they are willing to bear upward or look elsewhere.

Heading into Thanksgiving, credit is not in great shape.

The new issue market generated nearly no news whatsoever in the first three sessions of the Nov. 19 week.

And the news that came was negative.

Atlantica Yield plc announced in a Tuesday press release that it will not proceed with its $300 million offering of senior notes.

The decision was a response to broader market conditions, the company stated.

To sound a more hopeful note, heading into the holiday in the United States, just three sessions prior to Atlantica Yield pulling its deal, Vantage Drilling International priced an upsized $350 million issue of five-year senior secured first-lien notes (Caa1/B) at par to yield 9¼%.

Despite the fact the drilling services provider was bringing its deal in the teeth of the crude oil price crash, it was a notable execution, harkening back to the heady days of 2016.

The issue size was increased from $300 million, the yield printed at the tight end of talk and timing was accelerated.

It may also be worth noting Vantage Drilling’s 9¼% coupon as a key to the way forward.

In the entire year of 2016, which saw $231 million of issuance in 365 junk-rated, dollar-denominated tranches, a mere 13% of that issuance yielded 9% or more.

In a more challenging credit environment, that percentage will increase, a trader said on Wednesday.

California Resources pares losses

California Resources’ 8% senior notes due 2022 were again among the most actively traded issues in the secondary space on Wednesday.

The notes reversed course as crude oil futures rebounded from their lows.

The 8% notes were quoted at 81¾ bid, 82½ offered on Wednesday and traded up 1¾ points to close the day at 81¾, sources said.

About $20 million of the bonds were on the tape by the late afternoon.

The notes dropped 3 points on Tuesday after another precipitous drop in crude oil futures.

The barrel price of WTI crude oil for January delivery rebounded on Wednesday, settling at $54.64, an increase of $1.21 or 2.26%.

The bounce came after crude oil futures slid 6.59% during Tuesday’s session.

Transocean rebounds

Transocean’s recently priced 7¼% senior guaranteed notes due 2025 also rebounded on Wednesday after marking their lowest point since pricing on Tuesday.

The notes were quoted at 92 bid, 93½ offered on Wednesday. They were quoted at 90¾ bid, 91¾ offered on Tuesday.

Transocean priced a $750 million issue of 7¼% notes due 2025 on Oct. 22.

While slow to trade, Transocean’s 9% senior notes due 2023 were again seen in secondary trading.

The 9% notes gained 1 point to close the day at 102, a market source said. About $11 million of the bonds traded during Wednesday’s session.

The 9% notes are a $1.25 billion issue and much more liquid than the 7¼% notes, a market source said. They priced at 97.5 in 2016.

Intelsat active

Intelsat Jackson’s 8½% senior notes due 2024 were also on the upswing during Wednesday’s session although they were still trading well below their issue price.

The 8½% notes were quoted at 97 3/8 bid, 98 1/8 offered in the mid-afternoon, according to a market source.

While most trades during Wednesday’s session were between 97½ and 98, the notes closed the day at 98¼.

More than $15 million of the bonds were on the tape by the late afternoon.

The 8½% notes were quoted at 96½ bid, 97 offered on Tuesday.

Intelsat initially priced a $2.25 billion issue of the 8½% senior notes at par in September and priced a $700 million add-on at par ¾ in October.

Altice gains

Altice’s junk bonds were making gains in the secondary space after Altice Europe NV reported third-quarter earnings.

Altice SA’s 7¾% senior notes due 2022 were up 2 points to close the day at 92. More than $14 million of the bonds were on the tape by the late afternoon, according to a market source.

Altice Financing SA’s senior notes were also posting gains although they were less active, a source said.

Altice Financing’s 7½% senior notes due 2026 gained 1¾ points to close the day at 94¼.

Altice Europe reported a 10.4% decrease in adjusted EBITDA in the third-quarter and a 6.1% decrease in revenue, Reuters reported.

However, the company also reported an increase in customers in France with future growth anticipated.

Indexes mixed

Indexes turned the tide on a sea of losses on Wednesday with some posting gains after seven consecutive trading days of losses. However, indexes were still down on the week.

The KDP High Yield Daily index was flat on Wednesday, closing the day at 68.20 with the yield 6.64%.

The index dropped 12 basis points on Tuesday and 12 bps on Monday for a 24 bps drop on the week.

The index was down 78 bps on the week during the previous week.

The ICE BofAML US High Yield index gained 30.4 bps with the year-to-date return now negative 0.35%.

The index dropped 31.5 bps on Tuesday and 12.3 bps on Monday. After factoring in Wednesday’s gains, the index was down 13.4 bps on the week.

The index dropped 130.6 bps on the week during the prior week.

Returns entered into negative territory for the first time since June last Thursday.

The CDX High Yield 30 index gained 42 bps to close Wednesday at 103.84. The index dropped 28 bps on Tuesday and was down 47 bps on Monday.

The index dropped 33 bps on the week through Wednesday’s close after sinking 137 bps on the week last week.

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