New deal volume expected to stay thin; Charter volatile; HCA below par; energy plummets

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 6 – The domestic high-yield primary market continued to be sidelined by volatility on Friday.

Del Monte Foods Inc.’s $575 million offering of seven-year senior secured notes (Caa2/CCC+) is the sole deal in the market with new deal volume expected to remain thin in the upcoming week.

Meanwhile, the sell-off continued in the secondary space although volume remained light with many attempting to gauge the future direction of the market, sources said.

The energy sector remained the heaviest hit with several names in the space plummeting as crude oil futures cratered more than 9%.

Charter Communications Inc.’s newly priced tranches were weakening in high-volume activity with the 4½% senior notes due 2030 now trading below their reoffer price.

HCA Healthcare, Inc.’s 3½% senior notes due 2030 (Ba2/BB-/BB) dropped back below par after a brief stint above.

Market concern

Volatility related to coronavirus continued to sideline the new issue market on Friday, sources said.

The high-yield primary saw very thin volume during the turbulent first week of March.

Three issuers raised $3.64 billion by means of placing a combined total of four tranches.

Volume in the week ahead could be even thinner, a syndicate banker said, shortly after the Friday close.

For this banker, Friday's most “concerning” piece of news had nothing to do with cash outflows, or high-yield spreads gapping wider.

Rather it had to do with the American Airlines Group Inc. 3 ¾% senior notes due March 2025 (B1/BB-/BB-).

The first print of the day, on Friday, was 79 bid, the banker recounted.

The bonds traded as low as 77 bid, at 10:07 a.m. ET, the source continued.

They got as high as 85 bid in the afternoon, the banker added, noting that the $500 million bullet came at par on Feb. 20.

A look ahead

At Friday's close, the active forward calendar contained just one deal, the syndicate banker said.

Del Monte Foods Inc. is in the market with a $575 million offering of seven-year senior secured notes, which are expected to price Tuesday.

Early guidance is in the 11% to 12% area, a trader said.

The San Francisco-based food production company plans to use proceeds from the deal now being shopped in an effort to refinance its capital structure.

Energy plummets

The energy sector plummeted on Friday as crude oil futures dropped 8% to 10% following Russia’s opposition to OPEC’s proposed production cuts.

While volume was light, several names in the sector dropped 7 to 10 points with many of the deals to price during January sinking further underwater.

Laredo Petroleum, Inc.’s 9½% senior notes due 2025 and 10 1/8% senior notes due 2028 both dropped to the 50 range on Friday, according to a market source.

The 9½% senior notes due 2025 dropped more than 10 points to close the day just shy of 58.

The 10 1/8% senior notes due 2028 dropped 9 points to 57½.

Laredo priced a $600 million tranche of the 9½% notes and a $400 million tranche of the 10 1/8% notes at par in mid-January.

Nabors Industries Ltd.’s 7½% senior notes due 2028 dropped 9¾ points to 84¼.

Nabors’ 7¼% senior notes due 2026 dropped more than 8 points to 88.

Nabors priced a $600 million tranche of the 7¼% notes and a $400 million tranche of the 7½% notes at par in early January.

Transocean Inc.’s 8% senior notes due 2027 sank 4¼ points to 78¾ points.

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

The barrel price of WTI crude oil for April delivery plummeted to settle at $41.28, a decrease of $4.62, or 10.07%.

Brent crude oil futures settled at $45.56, a decrease of $4.43, a decrease of 8.86%.

Oil futures plummeted following news that a deal on production cuts between OPEC and Russia had collapsed and Russia gave the go ahead for producers to produce at will starting on April 1.

Charter volatile

New paper from Charter was volatile in the secondary space on Friday.

Charter’s 4½% senior notes due 2032 struggled to hold on to their premium in active trading.

The new notes traded as low as 98¾ in the high-volume activity but rallied back to close the day at 101, sources said.

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

Charter’s 4½% senior notes due 2030 were also volatile and closed the day below their reoffer price. The notes traded as low as par but rallied to close the day at 102.

More than $21 million of the bonds were on the tape by the late afternoon.

Charter priced a $1.4 billion tranche of the 4½% notes due 2032 at par and a $1.1 billion tap of the 4½% senior notes due 2030 at 102½ in a Wednesday drive-by.

HCA below par

After a brief stint above par, HCA’s 3½% senior notes due 2030 sank back below on Friday.

The 3½% notes traded as low as 98½ during Friday’s session but rallied to close the day at 99 5/8, sources said.

More than $18 million of the bonds were on the tape by the late afternoon.

The notes have largely languished below par since HCA priced the $2.7 billion megadeal at par on Feb. 12.

However, the notes rallied alongside the broader health care sector on Wednesday on the heels of the Super Tuesday election results.

The prospects of Joe Biden defeating Bernie Sanders in the democratic primary eased investors’ concern over Sanders’ “Medicare for All” healthcare initiative.

Big ETF outflows on Thursday

High-yield ETFs, which over the past two weeks have seen the junk bond market's fast money gush in and out in historic waves, sustained $1.34 billion of daily outflows on Thursday, a market source said.

Last week the junk ETFs sustained a record $1.87 billion daily outflow on Tuesday, Feb. 25, followed by an outflow of similar magnitude, (negative $1.81 billion) the following day.

Meanwhile, actively managed high-yield funds were modestly positive on Thursday with $30 million of inflows on the day.

News of Thursday's daily flows followed a Thursday report that the combined high-yield bond funds sustained $5.126 billion of net outflows for the week to the Wednesday, March 4 close, according to Lipper US Fund flows.

It was the biggest weekly outflow since the negative-$5.68 billion seen in the week ending March 15, 2017, the market source said.

The most recent outflow follows the previous week's $4.2 billion of outflows.

Those back-to-back flows (approximately $9.33 billion) represent the biggest two-week outflow in the history of the market, breaking the previous $9.1 billion record set in the two-week run-up to Feb. 14, 2018, according to the market source.

The most recent weekly outflow left year-to-date net cash flows to the combined funds at negative $6.6 billion to the Wednesday, March 4 close, the source said.

Indexes close week in red

Indexes closed Friday in the red with many seeing steep losses on the week.

The KDP High Yield Daily index dropped another 20 points to close Friday at 68.84 with the yield now 5.93%.

The index was down 20 bps on Thursday, gained 34 bps on Wednesday, 33 bps on Tuesday and 23 bps on Monday.

The index eked out a cumulative gain of 50 bps on the week.

The ICE BofAML US High Yield index is now brushing up against the negative 2% threshold after returning to positive territory on Wednesday.

The index plunged 141.4 bps on Friday with the year-to-date return now negative 1.994%.

The index dropped 59.5 bps on Thursday after gaining 51.3 bps on Wednesday, 59 bps on Tuesday and 49.2 bps on Monday.

The index posted a cumulative loss of 41.4 bps on the week.

The CDX High Yield 30 index again plummeted 138 bps to close Friday at 102.41.

The index plummeted 180 bps on Thursday, jumped 84 bps on Wednesday, plummeted 94 bps on Tuesday and gained 28 bps on Monday.

The index saw a cumulative loss of 300 bps on the week.

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