Morning Commentary: XPO tumbles on earnings, grim forecast; new Avolon, Park bonds gain

By Paul A. Harris

Portland, Ore., Feb. 15 – Junk was unchanged to slightly better on Friday morning against a backdrop of rallying stock prices, with the Dow Jones industrial average surging 330 points and oil prices stronger, sources said.

Traders were seeing a conspicuous number of offers-wanted-in-competition lists (OWICs) from the high-yield ETFs – “especially big for a Friday,” a New York-based trader said.

The ETF share prices were better on the morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.26%, or 23 cents, to $85.36 per share.

Crude oil prices were rallying in the early going.

The barrel price of West Texas Intermediate crude for March 2019 delivery was up 98 cents, or 1.8%, at $55.39.

The California Resources Corp. 8% senior secured second-lien notes due December 2022, a big liquid issue employed by high-yield bond investors for the purpose of tracking crude oil prices in the index, were up 1½ points at 79 7/8, the trader said.

XPO tumbles

The bonds of XPO Logistics, Inc. were lower Friday morning in active trading as the company reported that its earnings fell to $84 million, or 62 cents per share, in the fourth quarter of 2018, from $173 million, or $1.42 a share, a year ago, sources said.

The XPO Logistics 6 1/8% senior notes due September 2023 were down 1½ points to 98¼, according to the New York-based trader.

The Greenwich, Conn.-based provider of transportation and logistics services also said that it expects to be negatively impacted in the year ahead by a reduction in business from its largest client, the identity of which it did not disclose.

However, the market suspects that the client in question is none other than Amazon.com, Inc., which is undertaking an expansion in its own logistics capabilities, a market source said.

Elsewhere decent earnings numbers preceded an improvement in the distressed bonds of Boston-based educational content and services company Cengage Learning, Inc., the New York trader said.

The Cengage Learning 9½% senior notes due June 2024 were up 7 to 8 points at 73, the source added.

Meanwhile in a story that has unfolded throughout the week, McDermott International, Inc.’s bonds improved a little on Friday.

The McDermott International 10 5/8% notes due May 2024 were ¼ point better at 80¼ bid, the trader said.

Those bonds were trading in the low to mid 90s before the company reported on Wednesday that it would take a $168 million adverse charge related to its stake in the Cameron LNG project.

The adverse charge is due to unfavorable labor productivity and increases in subcontract, commissioning and construction management costs, McDermott stated in a press release.

The adverse charge is expected to impact McDermott's statements of operations for the three months and year ended Dec. 31, 2018.

The McDermott bonds are lately trading off of the distressed desk as investors appear to be seeing trouble ahead for the company, the trader remarked.

Recent issues

Among recent issues, bullet notes priced Thursday by aircraft leasing and lease management services provider Avolon Holdings Ltd. were trading at premiums to new issue prices on Friday, the trader said.

Add-on paper to the Park Aerospace Holdings Ltd. 5¼% senior notes due Aug. 15, 2022 (Ba2/BB+/BB+) was 101¾ bid, 101 7/8 offered Friday morning.

The upsized $300 million tranche (from $250 million) priced at 101.375 to yield 4.814% on Thursday.

The new Avolon Holdings Funding Ltd. 5¼% senior notes due May 2024 (Ba2/BB+/BB+) were 101 bid, 101 1/8 offered on Friday.

The upsized $800 million tranche (from $500 million) priced at par on Thursday.

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