Primary silent; trading thin; California Resources gains; Tesla active; L Brands drops

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 2 – The primary market remained dormant in the new year with no hints as to when it would restart.

However, there are some merger and acquisition deals expected in the first quarter, sources said.

Meanwhile, the secondary space was firm at the start of the new year after a sloppy close to 2018.

However, the illiquidity that characterized the final weeks of 2018 continued on Wednesday with many on the sidelines evaluating their next steps, a market source said.

California Resources Corp.’s 8% senior notes due 2022 continued its upward momentum on Wednesday as crude oil futures rebounded.

Tesla Inc.’s 5.3% senior notes due 2025 were active and trading off slightly after the electric car manufacturer announced a price cut and missed analyst projections for Model 3 sedan deliveries in the fourth quarter.

L Brands Inc.’s 5¼% senior notes due 2028 were also trading down after an analyst cut the price target for the company’s stock.

Primary dormant

The opening high-yield session of 2019 gave no hint of a primary market restart, sources said.

After the first “no-issue” month in well over a decade there was no visible activity in the primary market at Wednesday's close, a syndicate banker said.

There are a couple of merger and acquisition-type deals expected to come in the first quarter, the source added.

There appeared to be a brief period of stabilization in the capital markets in late December, the banker remarked.

In the event that there is some follow-on stability in the global capital markets in the new year, there is a good chance that a deal calendar will follow.

However, if anyone has a shadow calendar right now they are doing an excellent job of keeping it concealed, the source said.

California Resources gains

California Resources’ upward momentum continued on Wednesday after a brutal drop in the final weeks of December.

The notes gained about 2 points in active trading. They were quoted at 69¾ bid, 70½ offered and closed Wednesday at 70¼, sources said.

The notes were quoted at 67¼ bid, 68¾ offered on Monday, Dec. 31 after trading as low as 64 in the second-to-last week of December.

The 8% notes took a beating in the final weeks of December as crude oil futures plummeted to well below the closely watched $50 threshold.

However, the notes were making gains alongside crude oil futures on Wednesday.

The barrel price of crude oil for February delivery traded as high as $47.78 on Wednesday before settling at $46.54, an increase of $1.13, or 2.5%.

Crude oil futures were on the rise as OPEC is expected to begin making production cuts.

Tesla active

Tesla’s 5.3% convertible notes due 2025 were active and trading off slightly on Wednesday after the electric car manufacturer announced a price cut on its automobiles and lower than anticipated Model 3 sedan deliveries.

The 5.3% notes were down to 85 bid, 85½ offered at their lowest point on Wednesday but rallied to 85½ bid, 86½ offered by the late afternoon, according to a market source.

The notes were not that far off their levels from Friday when they were quoted at 85¾ bid, 86¾ offered.

While down only slightly, the notes were trading poorly compared to the rest of the market on Wednesday, which held up well, a market source said.

Tesla reported deliveries of 63,150 Model 3s in the fourth quarter, which fell short of analyst expectations for 63,700 deliveries, Bloomberg reported.

Tesla also announced a price cut of $2,000 on all its automobiles to offset a reduction in a federal tax credit, raising concerns about lowered demand for the automobiles.

L Brands down

L Brands’ junk bonds were also trading down on Wednesday after an analyst cut the price target on its stock.

L Brands 5¼% senior notes due 2028 traded as low as 84 during Wednesday’s session but stood poised to close the day at 85 bid, 86 offered.

The notes were quoted at 86 bid, 87 offered on Friday, a market source said.

The notes were trading down after Wells Fargo analysts cut their price target on L Brands stock to $50 from $55, a market source said.

Mixed Monday flows

The technical picture of the leverage markets is nothing short of dire, sources say.

The daily cash flows of the dedicated high yield bond funds were mixed but essentially negative on Monday, the most recent session for which data was available at press time, according to a trader.

High yield ETFs, with $17 million of inflows, were essentially flat on the day.

However, actively managed high yield funds sustained $225 million of outflows on Monday.

The combined high yield bond funds were subjected to a whopping $20.2 billion of outflows during the fourth quarter of 2018, according to the source.

The technical picture of the leveraged loan market is also negative, the trader said.

The dedicated bank loan funds sustained $525 million of outflows on Monday.

Weekly bank loan outflows have topped the $1 billion mark for six consecutive weeks, the trader added.

Indexes mixed

Indexes were mixed at the start of the new year with some posting gains and others seeing slight losses.

The KDP High Yield Daily index rose 7 basis points to close Wednesday at 66.73 with the yield now 7.15%.

After closing 2018 with a year-to-date return of negative 2.265%, the ICE BofAML US High Yield index started the new year on positive footing with a year-to-date return of 0.078%.

The CDX High Yield 30 index was down 22 bps to close Wednesday at 101.8.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.