Sell-off continues; TransDigm in focus; Uniti, Centene below par; funds lose $4.94 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 12 – The new issue market remained shuttered during an extremely volatile Thursday session.

Credit spreads continued to blow out, equities experienced their worst day since the “Black Monday” market crash of Oct. 19, 1987 and crude oil futures settled in the low $30s.

While the secondary market continued to plummet, liquidity was becoming an issue with trading volumes relatively light, sources said.

TransDigm Group Inc.’s 6¼% senior notes due 2026 were in focus on Thursday with the notes shaving off their premium in high-volume activity.

Mattel Inc.’s junk bonds also sank underwater in active trading.

Uniti Group Inc.’s 7 7/8% senior notes due 2025, which were at one time the best performer of the deals to price in 2020, dropped below par in active trading.

Centene Corp.’s 3 3/8% senior notes due 2030, which priced when the high-yield market was at its peak and 3-handles were commonplace, also tumbled firmly below par on Thursday.

Meanwhile, high-yield mutual and exchange-traded funds continued to hemorrhage cash with $4.94 billion leaving the space in the week through Wednesday’s close, according to the Refinitv Lipper Fund Flow report.

Primary closed

The new issue market remained shuttered during an extremely volatile Thursday session which saw the Dow Jones industrial average fall just under 10%.

Junk bonds fell 3.4% on the day, on a price basis, a market source said.

It has now been more than a week since the last new issues cleared the market.

On Wednesday, March 4, Charter Communications, Inc. issued $2.5 billion of 4½% unsecured paper in tranches of notes maturing in 2030 and 2032, and Science Applications International Corp. priced $400 million of 4 7/8% unsecured notes due in 2028.

The most recent euro-denominated deal to clear came all the way back on Feb. 20 when Catalent, Inc. priced €825 million of Catalent Pharma Solutions, Inc. 2 3/8% unsecured notes due 2028.

TransDigm in focus

TransDigm’s 6¼% senior notes due 2026 were among the most actively traded issues in the secondary space on Thursday.

The notes took off their premium and dropped almost 6 points to close the day just shy of 98, according to a market source.

The notes had held up relatively well amid the market sell-off and were trading on a 103-handle heading into Thursday’s session, a market source said.

The bonds saw more $45 million in reported volume during Thursday’s session.

The entire capital structure of the Ohio-based commercial and military aerospace components maker was under pressure on Thursday with the stock also down almost 12%, a market source said.

The company was most likely succumbing to the same pressure that has rocked the travel industry with suppliers to airlines now also taking a hit, a source said.

While the notes were under pressure on Thursday, TransDigm is a $21 billion market cap company, a source said, and the 6¼% notes were beginning to look interesting.

Mattel underwater

Mattel’s junk bonds were trading off in high-volume activity on Thursday.

The 5 7/8% senior notes due 2027 were down more than 5 points. The notes stood poised to close the day at 95¼, according to a market source.

The bonds saw more than $27 million in reported volume during Thursday’s session.

The 6¾% notes due 2025 were also down more than 5 points and stood poised to close the day at 95½, according to a market source.

The bonds saw more than $22 million in reported volume.

The toymaker’s stock was also down about 12% on Thursday, which may have caused investors to dump the bonds, a source said.

With the toymaker supply line coming out of China, sales may be impacted by the coronavirus.

Uniti below par

Uniti’s 7 7/8% senior notes due 2025 sank firmly below par on Thursday.

The notes were down more than 4 points and stood poised to close the day at 97½, according to a market source.

The bonds were active with more than $24 million in reported volume heading into the market close.

Uniti’s 7 7/8% notes were, at one time, the best performing of the new deals to price in 2020.

The notes traded as high as 106½ as recently as late February.

The notes were still on a 101-handle heading into Thursday’s session, a source said.

Uniti priced a $2.25 billion issue of the 7 7/8% notes at par on Feb. 5.

Centene drops

Centene’s 3 3/8% senior notes due 2030 also dropped firmly below par during Thursday’s session.

The notes were down almost 5 points and stood poised to close the day at 94½, according to a market source.

The bonds saw more than $20 million in reported volume.

The St. Louis, Mo.-based insurance company priced a $2 billion issue of the 3 3/8% senior notes at par on Feb. 5.

When the notes priced, the high-yield market was on fire with spreads at all time tights and 3-handles for new deals commonplace.

While the notes were trading off with the overall market, the insurance company also announced on Thursday that it was covering coronavirus testing and screening for Medicaid, Medicare and marketplace members and waving co-pays for members.

The company reduced its 2020 profit forecast last week for unrelated reasons.

Outflows

The dedicated high-yield bond funds sustained $163 million of net outflows on Wednesday, according to a market source.

High-yield ETFs saw $8 million of outflows on the day.

Actively managed high-yield funds experienced $155 million of outflows on Wednesday, the source said.

News of Wednesday's daily flows was followed by a report that the combined high-yield funds sustained $4.944 billion of outflows in the week to Wednesday's close.

That extends total net outflows over the past three weeks to approximately $14.32 billion ($5.126 billion in the week to March 4, $4.198 billion in the week to Feb. 26), according to a Prospect News analysis of the data.

That total for the three weeks that concluded on Wednesday easily surpasses the previous consecutive three-week outflow of $10.9 billion for the three weeks that ended on Aug. 6, 2014, the market source said.

Indexes plummet

Indexes plummeted on Thursday, extending their losses from a tumultuous week.

The KDP High Yield Daily index dove 238 points to close Thursday at 63.41 with the yield now 7.4%.

The index dropped 83 bps on Wednesday and gained 74 bps on Tuesday after dropping 2.96 bps on Monday.

While the ICE BofAML US High Yield index was in positive territory as recently as last week, it is now brushing up against negative 10% returns.

The index plunged 309.2 bps with year-to-date returns now negative 9.447%.

The index sank 113.5 bps on Wednesday and gained 31.2 bps on Tuesday after plummeting 353.8 bps on Monday.

The CDX High Yield 30 index moved down 345 bps to close Thursday at 92.95. The index was down 222 bps on Wednesday, gained 75 bps on Tuesday and plunged 454 bps on Monday.

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