Primary lull continues, though September pick-up seen; Tesla again volume leader; grocers still groaning

By Paul Deckelman and Paul A. Harris

New York, Aug. 30 – The high-yield primary market continued its summer vacation on Wednesday – the eighth straight session in which syndicate sources saw neither any new deals being announced and shopped around, or actually pricing.

But those sources said that this is likely to change once the upcoming Labor Day extended holiday weekend break in the United States is over and issuers come back to the market.

However, estimates of just how much new paper might price were all over the map.

For yet another session, the recently priced Tesla, Inc. eight-year bonds remain perched high atop the Junkbondland Most Actives list, although little or no price movement was actually seen in the electric car manufacturer’s issue.

Away from Tesla, bonds of supermarket companies like Fresh Market, Inc., Ingles Markets, Inc. and Albertsons Cos. LLC continued to trade fairly actively for a generally quiet session, with most of that paper again being pushed lower on investor fears that the newly completed merger between sector peer Whole Foods Market and retailing giant Amazon.com – and the latter company’s initiative to slash prices at its new unit could force the others in the industry to do likewise, meaning lower revenues and earnings.

Energy issues were seen as a mixed bag, even as Hurricane Harvey continued to wreak havoc along the U.S. Gulf Coast region, doubling back on its earlier path and pushing into Louisiana. Names like Denbury Resources Inc. and EP Energy Corp. were seen lower on the session, while Jones Energy Holdings and drillers Ensco and Atwood Oceanics made up for some lost ground.

Statistical market performance measures finished higher across the board on Wednesday, their fourth stronger session in the last five trading days. The indicators had turned mixed on Tuesday, after having been on the upside over the three sessions before that – which had followed four straight mixed sessions.

The primary market remained quiet on Wednesday.

With two sessions remaining until the Labor Day holiday weekend gets underway, the new issue market appears closed until Sept. 5, when the holiday concludes, sources say.

Forecasts for September issuance are mixed.

However syndicate sources look for it to come in around or slightly below the $36.6 billion average September volume over the past five years.

A couple of market sources warned that September issuance could be dramatically lower, perhaps lower than September 2015's $20.6 billion, the lowest September total over the past five years which came following the big swoop in oil prices that unfolded between mid-June 2014 and early December 2014.

Mitigating factors for September 2017 in the new issue market could include geopolitical volatility, as well as the ability of Congress and the Trump administration to make persuasive headway on tax legislation and the debt ceiling, sources say.

Summer cash flows to the high-yield funds have ebbed and flowed, a sellside source said on Wednesday.

However the institutional side of the market, where the real money comes from in high yield, seems strong, the sellsider added.

Also rates have rationalized over the month of August, which should make the asset class more attractive, the source noted.

Double B spreads were Treasuries plus 260 basis points on Wednesday, whereas they began the month 44 bps tighter at 216 bps, the sellsider said.

Market quiets down

In the secondary realm, a trader said Wednesday that “there was “nothing much going on – no real stories of any names moving around, one way or another.

“Markets were flat, unchanged. Everything was kind of flat and uneventful.”

Things were “brutally quiet,” a second trader agreed, with “really not much of note happening.”

He said that “not a lot was going on, volume-wise – even among the normally active volatile-price names.”

Tesla trades – but doesn’t move

Among specific names, a trader said that Tesla, Inc.’s 5.3% notes due 2025 “were pretty much unchanged.

“The volume is there – but they’re just not going anywhere.”

A second trader said the bonds were unchanged on the day at 98¼ bid, on volume of some $22 million, the most of any junk credit.

At another desk, a market source pegged the bonds at just over 98½ bid.

The Palo Alto, Calif.-based electric car manufacturer and power storage technology company priced that $1.8 billion regularly scheduled forward calendar issue at par back on Aug. 11, after upsizing the issue from an originally announced $1.5 billion.

Since then, those bonds have been actively traded most days – Friday was the major exception to the rule, with only about $4 million traded.

After pricing, Tesla has mostly been struggling, gradually moving down to 97-handle territory, before finally seeming to bottom down there and turn slightly back upward last week, rising to around the 98 bid level and beyond.

Food stores still faltering

In the supermarket space, a trader said that “Fresh Market has been active over the last few days on the news about Amazon and Whole Foods.” Internet retailing giant Amazon this week officially closed its acquisition of Whole Foods – and promptly slashed prices on some food items by as much as 43%, sparking fears among rival grocers that they will be forced into a destructive price war that will cut revenues and earnings and reduce their already thin profit margins even further.

He said that the St. Louis-based store chain operator – considered a direct competitor of Whole Foods in vying for younger, more affluent grocery shoppers by featuring a lot of organic items and unusual, boutique products as well as the usual supermarket fare – “is pretty much unchanged,” with its 9¼% notes due 2023 around 75¾ bid.

A second trader located Fresh Market’s paper trading at 75 5/8 bid, down 1/8 point on the day, with around $7 million having changed hands.

Elsewhere in the food-store sector, a trader said that he had seen “not a lot of trading” in Black Mountain, N.C.-based Ingles Markets’ 5¾% notes due 2023.

“They’re still around 98-to-98½ – no real change there.”

A second trader saw them at 98 3/8 bid – little changed on the session but down some 2¼ points from their recently high levels. He said that only about $1 million traded in any sizeable trades, although there were a fair amount of smaller odd-lot transactions.

Not all of Wednesday’s activity was on the downside, though.

Boise, Idaho-based Albertsons’ 6 5/8% notes due 2024 were seen by a trader having bucked the sector’s generally negative tone, moving up by ½ point to 96 bid, on turnover of more than $9 million.

Another trader also saw them ending at 96 – but noted that they were off some 2½ points from their recent levels.

And a market source said that Jacksonville, Fla.-based supermarket chain operator BI-LO Holdings LLC’s 9¼% notes due 2019 gained 1¼ points on the day to close at 86½ bid, on volume of around $6 million.

Energy names mixed

In the energy field, a trader noted that Denbury Resources’ 9% notes due 2021 lost ¾ point on the day to close at 88¾ bid.

A second trader agreed, noting “they have some Texas exposure,” meaning some of the company’s operations may be curtailed in the wake of the Lone Star State’s recent weather problems from Hurricane Harvey.

He called them “down another ½ point” to the 88¾ bid level.

At another desk, the Plano, Texas-based oil and natural gas company’s 6 3/8% notes due 2021 were seen languishing at 54 bid, down ½ point on the day.

Austin, Texas-based oiler Jones Energy, Inc.’s 6¾% notes due 2022 were seen by a trader having moved up to 70 bid, calling that a 1½ point gain.

The trader also saw improvement in Pacific Drilling SA’s 5 3/8% notes due 2020, calling those notes too up 1½ points on the session, at 37½ bid.

Other energy-related names on the upside Wednesday included marine oil drilling contractor Ensco’s 5¾% bonds due 2044, up a point on the day to just over 65, and Atwood Oceanics – which is being bought by Ensco – whose 6½% notes due 2020 gained 1 point to 98½ bid.

Back on the downside, exploration and production operator EP Energy’s 8% notes due 2025 closed down ¾ point at 67¼ bid.

Indicators turn northward

Statistical market performance measures finished higher across the board on Wednesday, their fourth stronger session in the last five trading days. The indicators had turned mixed on Tuesday, after having been on the upside over the three sessions before that – which had followed four straight mixed sessions.

The KDP Daily High Yield Index firmed by 3 basis points on Wednesday to end at 71.97, its sixth straight advance. The index had inched up by 1 bps on Tuesday after having jumped by 9 bps on Monday.

For a second straight session, its yield narrowed by 1 bp on Wednesday to end at 5.23%, matching Tuesday’s tightening. It was the third straight session the yield has come in, having also narrowed by 3 bps on Monday after having been unchanged on Friday.

The Markit CDX Series 28 High Yield Index rose by 5/32 point Wednesday to close at 107 1/32 bid, 107 1/16 offered, in contrast to Tuesday’s 1/16 point easing, which was its first loss after three straight gains.

And the Merrill Lynch North American High Yield Index firmed by 0.089% on Wednesday, versus Tuesday’s 0.019% loss, which had been its first setback after six straight sessions on the upside.

The gain raised the index’s year-to-date return to 5.901% from Tuesday’s 5.807% close, although it still remains well down from its Aug. 2 finish at 6.233%, its 2017 year-to-date peak level.

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