Trading light as credit spreads continue to blow out; energy names crater; HCA down again

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 16 – The high-yield primary market remained shuttered on Monday, which was another ugly day for the secondary space.

Losses continued to mount and credit spreads continued to blow out with the Federal Reserve’s emergency rate cut failing to ease investors’ concern.

However, trading activity in the secondary space was light with the lack of liquidity contributing to the dramatic price swings, a market source said.

The energy sector remained the hardest hit by the sell-off with several recently priced deals moving further into distressed territory.

Transocean Inc.’s 8% senior notes due 2027 and WPX Energy, Inc.’s 4½% senior notes due 2030 continued to bottom out as crude oil futures sank below the $30 a barrel threshold.

Losses continued to mount for the entertainment and travel industries as countries close their borders and public gatherings are curtailed to prevent the spread of the coronavirus.

AMC Entertainment Holdings Inc.’s junk bonds continued their downward momentum on Monday with S&P placing the movie-chain operator on watch for downgrade.

HCA Inc.’s 3½% senior notes due 2030 and Charter Communications Inc.’s recently priced senior notes also continued their downward trajectory.

A bad day

As the Dow Jones Industrial Average fell just under 13% on Monday, the iShares iBoxx $ High Yield Corporate Bd (HYG), the largest of the high-yield ETFs, fell 5½%, or $4.40, to close at 75.65.

That was its biggest one-day drop since the autumn of 2008, during the financial crisis set in train by the subprime mortgage meltdown and climaxing with the spectacular collapse of Lehman Brothers, said a market source who added that Monday volume was not massive.

With global capital markets volatility continuing to spike, the high-yield new issue market is expected to remain closed, at least in the near term, market sources say.

Energy craters

The energy sector was again cratering on Monday as crude oil futures settled below the $30 a barrel threshold.

Transocean’s 8% senior notes due 2027 continued their downward trajectory.

The 8% notes traded down more than 8 points to close the day at 45, according to a market source.

The notes have lost almost 50% of their value over the past two weeks. They were trading on an 88 handle the first week of March.

Transocean priced a $750 million issue of the 8% guaranteed senior notes at par in early January.

While volume was light, WPX Energy’s 4½% senior notes due 2030 dropped double digits on Monday.

The notes traded down 11 points to 57 in the late afternoon, according to a market source.

The 4½% notes were trading in the high 90s the first week of March.

WPX Energy priced a $900 million issue of the 4½% notes at par in early January.

The barrel price of WTI crude oil for April delivery settled at $28.69, a decrease of $3.04 or 9.58%.

The barrel price of Brent crude oil for May delivery settled at $29.74, a decrease of $4.11 or 12.14%.

The sell-off in crude oil futures accelerated on Monday with the lowered demand expected due to the coronavirus outbreak converging with a supply glut created by Russia and Saudi Arabia’s price war.

Watch AMC

AMC Entertainment’s junk bonds continued their falter as official guidelines to prevent the spread of the coronavirus outbreak limit public gatherings.

AMC’s 5¾% senior notes due 2025 dropped almost 12 points.

The notes traded down to a 48-handle on Monday but stood poised to close the day at 50½, according to a market source.

AMC’s 6 1/8% senior notes due 2027 dropped 12 points outright to a 48-handle, the source said.

S&P put AMC on a ratings watch with negative implications on Monday with the rating agency monitoring the impact of the coronavirus on box office attendance trends.

AMC announced recently that it was limiting ticket sales to 50% of the normal seating capacity or limiting attendance to 50 people in a new 50/50 policy to curtail the spread of the virus.

Liquid

Liquidity was becoming an issue in the secondary space with trading volume light amid the chaos in the markets, a source said.

However, some recent deals continued to see active trading, which sources attributed to their size.

HCA’s 3½% senior notes due 2030 continued to trade off with the overall market in high-volume activity.

The 3½% notes dropped 5 points to close the day at 91½, according to a market source.

The notes were volatile in high-volume activity last week.

They traded as high as 99 and as low as 94 as the broader market wavered between steep losses and minor rebounds.

They were trading above par the first week of March.

HCA priced a $2.7 billion issue of the 3½% notes at par on Feb. 12.

Charter’s recently priced senior notes were also trading off on Monday.

The 4½% senior notes due 2032 traded off 4½ points to 94, according to a market source.

The 4½% senior notes due 2030 dropped 4 points to 94¾.

Charter priced a $1.4 billion tranche of the 4½% notes due 2032 at par and a $1.1 billion add-on to the 4½% notes due 2030 at 102½ on March 4.

Friday outflows

The dedicated high-yield bond funds sustained $1.465 billion of net outflows on Friday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds saw $1.25 billion of outflows on the day. Those Friday outflows took place as the Dow rose 9.29%, the source noted.

The specter of redemptions hovers over the junk bond market, a trader said on Monday, but added that no news of specific situations had yet been heard.

Meanwhile, the high-yield ETFs, said to represent the fast money in the high-yield market, sustained $215 million of outflows on Friday, the market source added.

Indexes

Indexes extended their losses on Monday after all saw steep cumulative losses on the week.

The KDP High Yield Daily index dropped 218 points to close Monday at 61.63 with the yield now 8.13%.

The index saw a cumulative loss of 209.96 bps on the week last week.

The ICE BofAML US High Yield sank 317.1 bps with year-to-date returns now negative 12.312%.

The index posted a cumulative loss of 714.7 bps on the week last week.

It was in positive territory as recently as a week and a half ago.

The CDX High Yield 30 index plummeted 452 bps to close Monday at 93.35.

The index posted a cumulative loss of 454 bps on the week last week.

© 2015 Prospect News.
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