Euro junk bond primary active; Charter, Commercial Metals below par in volatile space

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 18 – On Tuesday, the U.S. high-yield primary market was off to a slow start with new issue action reported only out of Europe.

Meanwhile, volatility continued in the secondary space with the market down 3/8 point, a trader said, as the 10-year Treasury yield hit a new two-year high.

The 10-year Treasury yield firmly crossed the 1.8% threshold, hitting as high as 1.879% before closing the day at 1.872%.

Rate-sensitive names remained under pressure with several recent issues weaker on Tuesday.

Charter subsidiaries CCO Holdings LLC and CCO Holdings Capital Corp.’s 4¾% senior notes due 2032 (B1/BB+/BB+) sank below par in high-volume activity.

Commercial Metals Co.’s 4 3/8% senior notes due 2032 (Ba2/BB+/BB+) also traded below par.

However, Range Resources Corp.’s 4¾% senior notes due 2030 (B1/BB-) held onto its premium in active trading on Tuesday as crude oil futures continued to soar.

Turbulent Tuesday

Turbulence which overtook the stock market on Tuesday also made an impact on high-yield bonds, sources said.

“It's all about rates,” the trader asserted, noting that heading into Tuesday's close the 10-year Treasury was yielding 10 basis points higher than it did at Friday's close, as the capital markets gird for a dramatic transformation in the price of money.

While the European primary market generated a healthy volume of news on the day (see related stories in this issue), the dollar-denominated new issue market remained quiet.

That won't be the case all week, sources say.

VistaJet is expected to show up with a deal as early as Wednesday, sources say. BofA Securities, Inc. will be the lead.

Bausch Health Cos. Inc. could bring $1 billion of new secured notes later this week as part of a refinancing effort announced on Tuesday.

Initial guidance is in the mid-5% area.

The refinancing also includes a new $2.5 billion term loan via Barclays, set to kick off on a Wednesday lender call. Initial talk on the loan is also in the mid-5% area, the trader said.

Also, athenahealth Inc. is expected to show up in the junk bond new issue market, possibly during the Jan. 24 week, seeking cash to support the buyout of the company by Bain Capital and Hellman & Friedman.

The Watertown, Mass. medical software company plans to kick off a $6.75 billion term loan, via JPMorgan, on Wednesday.

Charter below par

Charter subsidiary CCO Holdings’ 4¾% senior notes due 2032 sank below par in high-volume activity on Tuesday.

The 4¾% notes were down about 5/8 point to a 99-handle.

They were changing hands in the 99 3/8 to 99 5/8 context throughout Tuesday’s session.

The 4¾% notes held up well despite the volatility in the market on Friday, closing last week wrapped around par.

However, the notes succumbed to the selling pressure on Tuesday.

CCO Holdings priced a $1.2 billion issue of the 4¾% notes at par on Jan. 13.

Commercial Metals lower

Commercial Metals’ 4 3/8% senior notes due 2032 were also lower on Tuesday.

The 4 3/8% notes fell about ½ point. They were changing hands in the 99½ to 99¾ context heading into the close, according to a market source.

While volume in the name was lighter, the steel and metal manufacturer’s 4 1/8% senior notes due 2030 were also weaker.

The notes shaved off about ¼ point and were changing hands in the 99¾ to par ¼ context on Tuesday.

Commercial Metals’ tranches both saw weak breaks with both notes dropping below par.

However, they rallied to close last week largely flat.

The company priced a $300 million tranche of the 4 3/8% notes and a $300 million tranche of 4 1/8% notes at par on Jan. 13.

Range Resources holds

Range Resources’ 4¾% senior notes due 2030 held onto their premium in active trading on Tuesday.

The notes from the petroleum and natural gas exploration company were largely unchanged.

They continued to trade in the par 3/8 to par 5/8 context throughout the session.

While the overall market was weak, the energy sector outperformed as crude oil futures continued their upward trajectory.

WTI crude oil futures settled at $85.43, an increase of $1.61 or 1.92%. Brent crude oil futures settled at $88.63, an increase of $2.15 or 2.49%.

Natural gas also continued to rise with futures settling at $4.28, an increase of 2 cents or 0.49%.

The notes were heard to have a decent short to them. However, after falling flat on the break, they gained strength heading into Friday’s close, ending last week at par 5/8.

Range Resources priced a $500 million issue of the 4¾% notes at par on Jan. 13.

$984 million Friday outflows

High-yield ETFs sustained $984 million of daily outflows last Friday, the most recent session for which data was available at press time, according to market sources.

More ETF outflows are expected to be reported on Wednesday, when Tuesday's daily fund flow numbers become available, according to a bond trader who added that traders were working through $3.15 billion of bids-wanted-in-competition (BWICs) on Tuesday, primarily from the ETFs.

And based on Tuesday's closing premiums the junk ETFs are expected to be sellers again on Wednesday, the trader said.

Meanwhile the actively managed high-yield funds saw positive cash flows last Friday, posting $55 million of inflows on the day.

The cash flows of the dedicated high-yield bond funds in Europe have also been negative, according to a market source.

The European junk funds sustained $744 million of net outflows in the week to the Friday, Jan. 14 close, the source said, citing a report by Credit Suisse.

Year-to-date flows for the European funds stood at €1.81 billion to Friday's close, the source added.

As reported, the dollar-denominated high-yield bond funds sustained $2.24 billion of net outflows in the most recent week (to the Wednesday, Jan. 12 close), according to Refinitiv Lipper.

Year-to-date the dollar-denominated junk funds have sustained $1.9 billion of net outflows, according to a market source.

Indexes

The KDP High Yield Daily index fell 34 points to close Tuesday at 64.87 with the yield now 4.31%.

The index posted an 11-point loss on the week last week.

The CDX High Yield 30 index sank 37 basis points to close Tuesday at 108.01.

The index posted a cumulative gain of 3 bps on the week last week.

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