Secondary space gains, credit spreads tighten; Ford, Delta eyed; HCA, Tenet Healthcare improve

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 24 – While the domestic high-yield primary market remained closed on Tuesday, the appetite for risk returned to the secondary space with the overall market on the rise.

While cash bonds remained in distressed territory, credit spreads for ETFs tightened significantly during Tuesday’s session, a market source said.

While volume remained relatively light, there was an uptick in activity with higher-quality credits in demand.

Ford Motor Co.’s split-rated senior notes were in focus on Tuesday with the company on the verge of becoming the latest fallen angel to enter junkbondland.

Delta Air Lines Inc.’s senior notes were also being eyed after S&P downgraded the company to junk.

HCA Inc. 3½% senior notes due 2030 (Ba2/BB-/BB) and Tenet Healthcare Corp.’s 6 ¾% senior notes due 2023 were among the most actively traded names in the healthcare space with both rising alongside the broader market.

Improved

The primary market remained closed on Tuesday with no deals pricing and none announced.

The credit facilities put in place by the Federal Reserve Bank in order to lend to investment grade corporations in the primary and secondary credit markets appear to have gotten traction, a market source observed.

However, any impacts upon the high-yield market will be tertiary, as the Fed has no charter for owning speculative grade bonds.

Nevertheless, Tuesday's massive stock market rally, which saw the Dow advance 11.37%, appeared to have a carry-over effect with respect to junk.

ETF share prices saw big improvements on the day.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) rose 4.12%.

The SPDR Bloomberg Barclays High Yield Bond ETF (JNK) advanced 4%.

And the iShares Broad USD High Yield Corporate Bond ETF (USHY) advanced 3.69%.

However, the active forward calendar remains empty, as the new issue market waits for volatility in the capital markets to subside and junk bond prices to stabilize, in order for investors, issuers and dealers to discover what will be the new cost of raising cash in the high yield bond market, sources say.

Credit spreads tighten

The high-yield secondary space saw dramatic improvement on Tuesday as optimism surrounding a stimulus bill in Congress reignited investor’s appetite for risk.

While the cash bond market as a whole remained in distressed territory with a credit spread of 1078 bps late Tuesday afternoon, it was most likely the result of a lack of liquidity, a market source said.

Credit spreads for the exchange-traded funds HYG and JNK tightened upwards of 100 bps.

JNK stood poised to close Tuesday with a credit spread of 975 bps, which tightened about 100 bps from Monday’s session.

HYG stood poised to close Tuesday with a credit spread of 969 bps, a 107-bps tightening from Monday, a source said.

“The volatility is mindboggling,” a source said.

Ford in focus

Ford’s split-rated senior notes were in focus on Tuesday with the automaker on the verge of becoming the latest fallen angel to hit junkbondland.

Ford’s 5.113% senior notes due 2029 were the most actively traded in the secondary space.

The notes rose 7½ points to 70½ in the late afternoon with more than $38 million in reported volume, according to a market source.

The notes were rebounding after a sell-off sparked by Fitch Ratings downgrade of the company on Monday.

The notes were bid up on Tuesday with higher quality credits in demand in the secondary space, sources said.

The 5.113% notes were trading in the low 90s as recently as March 13.

Fitch Ratings downgraded Ford to BBB- with a negative outlook on Monday due to concern over the impact of the coronavirus on the company’s financial performance, Prospect News reported.

Moody’s Investors Service downgraded Ford to junk in 2019.

Delta eyed

While volume was light, market players were also eyeing Delta Air Lines after S&P downgraded the company to junk.

Delta’s split-rated 3.8% senior unsecured notes due 2023 were marked at 82 to 82½ on Tuesday with a yield of 10%, a source said.

The notes were changing hands in the high 90s as recently as March 13.

Delta’s 2.9% senior unsecured notes due 2024 were changing hands just north of 80 late Tuesday afternoon with a yield of 8%.

The notes were changing hands in the mid-90s as recently as March 13.

S&P downgraded Delta to BB from BBB- and downgraded Delta’s unsecured debt to BB from BB+ on Tuesday due to the impact of the coronavirus. (See related article in this issue.)

Healthcare names improve

HCA’s 3½% senior notes due 2030 continued to see high-volume activity with the notes improving on Tuesday.

The 3½% notes were up 1¼ point to close the day at 81¼, according to a market source.

The notes saw more than $25 million in reported volume during Tuesday’s session.

The 3½% notes are a large, liquid issue that have largely been trading with the market, a source said.

Tenet Healthcare’s 6 ¾% senior notes were on the rise in active trading on Tuesday.

The notes were up 3¼ points to close the day at 87¼, according to a market source.

The bonds saw more than $21 million in reported volume.

Tenet Healthcare recently extended the maturity of its letter-of-credit facility to Sept. 12, 2024 from March 7, 2021 and increased the available amount to $200 million, Prospect News reported.

$614 million Monday outflows

The dedicated high-yield bond funds sustained $614 million of net outflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $509 million of outflows on the day.

Actively managed high-yield funds sustained $105 million of outflows on Monday, the source said.

The combined funds are tracking $1.07 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Meanwhile, European dedicated high-yield bond funds sustained €1.075 billion of outflows in the past five days, a London-based sell-side source said.

The euro funds are in the red to the tune of €5.583 billion, year-to-date, the source added.

Indexes rise

Indexes were on the rise on Tuesday after opening the week in the red.

The KDP High Yield Daily index closed Tuesday up 78 bps with the yield now 10.16%.

The index was down 19 bps on Monday.

The ICE BofAML US High Yield gained 92 bps with the year-to-date returns now negative 19.73%.

The index broke past the negative 20% year-to-date return threshold on Monday when it dropped 183.3 bps.

The CDX High Yield 30 index skyrocketed 512 bps to close Tuesday at 91.88.

The index dropped 70 bps on Monday.

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