Netflix prices $2 billion equivalent; Transocean trades down; Tesla gains; Hi-Crush drops

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 23 – The primary market rolled out Netflix, Inc.’s highly-anticipated offering on Tuesday with the secondary space soft amid a sell-off in equities and tanking oil futures.

Netflix priced approximately $2.06 billion of 10.5-year senior notes (Ba3/BB-) in two tranches on Tuesday.

Despite a down day for the market, the dollar-denominated tranche was strong out of the gate and closed the day above issue price.

However, Transocean Inc.’s newly priced 7¼% senior notes due 2025 dropped in the secondary space with the notes down 2 points from their issue price in intraday trading.

While Tuesday was a rough day for the oil and gas sector, the notes’ poor performance was more specific to the deal, a market source said.

With oil futures down over $3 in intraday trading, California Resources Corp.’s 8% senior secured second-lien notes due December 2022 were active and losing ground.

Hi-Crush Partners LP’s 9½% senior notes due 2026 continued to see high trading volume with the notes giving up their previous gains and dropping in the wake of the company’s third-quarter earnings report.

Tesla Inc.’s 5.3% senior notes due 2025 were one of the rare gainers during Tuesday’s session with the notes up more than 1 point after a short-seller announced he was going long in the electric car manufacturer.

The secondary space was the “sloppiest it’s been in a while,” on Tuesday with ETF outflows beginning to take their toll, a market source said.

High beta names were down about ¾ point on Tuesday with lower beta names down ¼ to ½ point.

While there has been selling pressure in the market, it has not yet reached the point of panic.

“I don’t think anyone’s rushing to hit bids,” the source said.

Netflix returns

Netflix priced approximately $2.06 billion of 10.5-year senior notes (Ba3/BB-) in two tranches on Tuesday, according to market sources.

The deal included an $800 million tranche that priced at par to yield 6 3/8%.

The yield printed at the wide end of yield talk in the 6¼% area and in the middle of initial talk in the 6 3/8% area.

The $800 million tranche was playing to $1.8 billion of orders at mid-morning Tuesday, a New York-based trader said.

The euro-denominated portion of the deal featured €1.1 billion of the notes that priced at par to yield 4 5/8%.

The yield printed at the wide end yield talk in the 4½% area and in the middle of initial guidance of 6 3/8%.

The euro-denominated tranche was also heard to be oversubscribed, the trader said.

The amount that priced came slightly higher than the $2 billion equivalent amount launched on Monday.

Morgan Stanley, Goldman Sachs, J.P. Morgan, Deutsche Bank and Wells Fargo were the joint bookrunners.

The Los Gatos, Calif.-based media services provider plans to use the proceeds for general corporate purposes.

The new 6 3/8% notes were strong out of the gate, a market source said.

They were seen at par 1/8 bid, par 3/8 offered soon after breaking trade and continued to climb in high-volume activity.

They stood poised to close the day at par 5/8. More than $50 million of the bonds traded during Tuesday’s session.

Netflix paid 50 basis points higher on Tuesday than it did earlier in the year when it priced a dollars-only $1.9 billion issue of 5 7/8% senior notes due November 2028 (also 10.5-year paper) at par.

The 5 7/8% notes dropped about ½ point on Monday to 98 1/8.

Transocean struggles

Transocean’s newly priced 7¼% senior notes due 2025 were struggling in high-volume activity in the secondary space with the notes dropping 2 points below their issue price in intraday trading.

The 7¼% notes were quoted at 98½ bid, 99 1/8 offered early in the session.

They traded as low as 98 during Tuesday’s session but stood poised to close the day at 99.

“It’s trading ugly,” a market source said.

With more than $76 million bonds on the tape by the late afternoon, the notes dominated trading activity in the secondary space.

While Tuesday saw a steep decline in crude oil futures, it should not have resulted in the large drop in the notes, a source said.

Their performance was more indicative of the deal struggling to get done, the source said.

Transocean is involved in offshore drilling which is an area with a lot of uncertainty and high capital expenditures, another source said.

Transocean priced a $750 million issue of the 7¼% notes at par in a Monday drive-by.

The yield printed in the middle of official yield talk in the 7¼% area, which was also preliminary talk.

California Resources drops

California Resources’ 8% senior notes due 2022 were down 1 point in high-volume activity on Tuesday as crude oil futures tanked.

The 8% notes were quoted at 93¾ bid, 94¼ offered and were seen changing hands at 93 7/8, sources said.

More than $25 million of the bonds were on the tape by the late afternoon.

The price of West Texas intermediate crude oil for December delivery dropped more than $3 in intraday trading. Crude oil settled at $66.43, a decrease of $2.93, or 4.22%.

Oil futures dropped as Saudi Arabia launched its investment conference.

Comments from Saudi officials about the role the country would play in the oil market triggered concern the market would be flooded with supply, MarketWatch reported.

Hi-Crush gives back

Hi-Crush’s 9½% senior notes gave back Monday’s gains with the notes dropping in high-volume activity on Tuesday.

The 9½% notes traded down to 89¾ but closed the day on a 90 handle, a market source said. More than $21 million of the bonds were in play during Tuesday’s session.

The notes dropped 2 points from Monday’s closing level when they traded up 1 point to 92.

While Hi-Crush’s notes were trading up after its third-quarter earnings report, they were largely credit versus equity trades.

Hi-Crush’s equity tanked on Monday after the company reported an earnings miss and slashed its dividend by 50 cents.

The proppant and logistics service provider missed its EBITDA by a large amount. Distressed debt players are eyeing the 9½% notes as the company struggles, a market source said.

Tesla gains

On a soft day for the market, Tesla’s 5.3% senior notes due 2025 were making gains. The notes jumped 1 point to close the day at 86¼, a market source said.

With $38 million bonds in play during Tuesday’s session, the notes were among the most active issues in the secondary space.

Tesla was gaining after short-seller Andrew Left of Citron Research announced he was reversing course and going long in Tesla stock.

Tesla is expected to report earnings after the market close Wednesday.

Monday outflows

The daily cash flows of the dedicated high-yield bond funds were negative on Monday, the most recent session for which data was available at press time, market sources say.

High-yield ETFs sustained $308 million of outflows on the day.

Actively managed high-yield funds saw $20 million of outflows on Monday, sources said.

Indexes down

Indexes posted losses for the fifth consecutive trading day on Tuesday.

The KDP High Yield Daily index dropped 12 basis points to close Tuesday at 69.62 with the yield now 6.13%.

The index was down 10 bps on Monday after a 9 bps drop on the week last week.

The ICE BofAML US High Yield index was down 33.8 bps on Tuesday with the year-to-date return now 1.159%.

The index slid 1 bp on Monday after a 7.8 bps drop on the week last week.

The CDX High Yield 30 index fell 22 bps to close Monday at 105.49.

The index dropped 50 bps on the week last week.

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