Industrial metals rally; energy names bounce; Sprint debt continues to roll following preliminary results

By Colin Hanner and Paul A. Harris

Chicago, Oct. 18 – Rallying cries for some high yield bonds were met with news coming out of early quarterly releases, a newly released index that stirred speculation about inflationary measures by the end of the year and industrial metal sector news that spilled over into the market.

“Metals and mining were the best performers today,” a market source said.

Australian thermal coal spot prices hit $100 per ton for the first time in four years, and industrial metals surged as $255 billion in Chinese financing exceeded expectations and the dollar weakened for the second-consecutive day.

As a result, metals names were trending higher.

AK Steel Holding Corp.’s 7 5/8% notes due 2020 were up a ½ point to 97. The West Chester, Ohio-based steel company will announce its quarterly earnings on Oct. 25.

Freeport-McMoRan Inc. 3.55% notes due 2022 were “very active, but unchanged on the day,” finishing at 91, a trader said.

The consumer-price index increased 0.3% in September, building into an overall 1.5% rise over the last 12 months, per a U.S. Bureau of Labor Statistics release. Higher rents and gasoline prices were the major contributors to rising inflation.

The energy index saw its largest increase since April, growing 2.9%. From August, energy commodities were up 5.5%; gasoline was up 5.8%; fuel oil was up 2.4%; electricity was up 0.7%; and utility (piped) gas service was up 0.8%.

The energy index has declined 2.9% over the past year, the smallest annual decline since October 2014, the report said.

Oil and gas bonds fared better in the wake of the news.

SM Energy 6¾% notes due 2026 were up “a few points” to “106 to 106½,” a trader said. They were up from 104 on Friday when they last traded.

Per a conference call on Tuesday, the company announced that it has no plans to cut equity and said that projected outspend would be funded through portfolio management, including, but not limited to, asset sales.

Ferrellgas LP’s 6¾% notes due 2023 were “unchanged from yesterday” and still trading at 91. The company’s 6¾% notes due 2022 were up ¾ to 93½.

California Resources Corp., Stone Energy Corp. and Targa Resources Partners rounded out the energy sector with modest gains.

California Resources’ 8% notes due 2022 were up ¾ to 73½; Stone Energy’s 7½% notes due 2022 were up 1 point to 59; and Targa’s 4¼% notes due 2023 were up ½ to 97½.

CNH drive-by

In the Tuesday primary market CNH Industrial Capital LLC priced a $400 million issue of 3 7/8% five-year fixed-rate non-subordinated unsecured bullet notes (Ba1/BB) at 99.441 to yield 4%.

The yield printed at the wide end of yield talk in the 3 7/8% area.

Active bookrunner Barclays will bill and deliver. Goldman Sachs & Co. and RBC Capital Markets were also active bookrunners. BBVA and Natixis were passive bookrunners.

The London-based captive finance company, an indirect wholly owned subsidiary of CNH Industrial NV, plans to use the proceeds for working capital and other general corporate purposes including, among other things, the purchase of receivables or other assets in the ordinary course of business, as well as repayment of debt as it becomes due.

Enviva guidance high 7%-low 8%

Elsewhere Enviva Partners, LP is marketing $300 million of five-year senior notes with initial yield guidance in the high 7% to low 8% area, a trader said on Tuesday.

The deal is set to price this week.

JP Morgan Securities LLC, Citigroup Global Markets, Barclays, Goldman Sachs & Co. and RBC Capital Markets are managing the offer.

Mixed flows on Monday

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

High yield ETFs sustained a modest $7 million of outflows on the session.

Actively managed funds, however, saw $20 million of inflows on Monday.

Meanwhile the cash flows of the dedicated bank loan funds, which have tended to be strongly positive recently, remained so on Monday.

The loan funds saw $160 million of inflows on the day, the trader said.

Dialing in

Per an 8-K filing with the Securities and Exchange Commission, Sprint Corp. released preliminary financial results for the second fiscal quarter during Tuesday’s session.

The company’s total net operating revenues of $8.25 billion grew 3% year-over-year, and wireless net operating revenues totaling $7.85 billion grew nearly 5% year-over-year, the report said.

Last year’s second quarter net loss was dwarfed by a $443 million swing toward the red this year; the company reported a net loss of $142 million in this year’s quarter.

Monthly subscribers — 344,000 for the quarter — beat expectations by nearly 100,000.

On the earnings, Sprint’s 7 1/8% notes due 2024 were active and traded down a ¼ point to 97½, a trader confirmed. The 7% notes due 2020 traded up 1 to 103½, and the 7 7/8% notes due 2023 were down ¼ were down to 101 5/8.

DISH Network, Corp.’s 7¾% notes due 2026 traded up ½ to 109 on “a dozen traded,” a trader said.

Micron Technology, Inc. 5½% notes due 2025 were “pretty actively traded” at 100¼, ¾ of a point increase on the day.

Rackspace Hosting, Inc. was “rallying hard” during Tuesday’s session and the company’s 6½% notes due 2024 were at 114 5/8, up 1/8. The company entered a $4.3 billion deal nearly two months ago with Apollo Global Management to go private.

Market round-up

CF Industries Holdings Inc. was downgraded to junk by S&P Global Ratings on Tuesday and was “pretty active,” a market source said. The 3.8% notes due 2023 were “one of the more active issues” but were still trading around the same level, “around a 94 handle.”

“The lower ratings reflect our view that ongoing depressed pricing in the nitrogen fertilizer sector will weaken credit metrics to levels that are not appropriate at the previous ratings,” S&P said in the statement with the downgrade.

Valeant Pharmaceuticals Inc. 6 1/8% notes due 2025 were down 5/8 point to 82 1/8 on “pretty good volume,” a market source said.

MGM Resorts International were “pretty much unchanged” and the 4 5/8% notes due 2026 traded at 97¾, a market source said.

Supervalu seemed to ride on the news of yesterday’s $1.37 billion Save-A-Lot selloff. Its 6¾% notes due 2021 were up 1 to 100¾.

Hovnanian Enterprises, Inc.’s 7% notes due 2019 were up a ½ to 66 ¾, a market source said.

Intelsat SA’s Jackson-linked 5½% notes due 2023 were up “½ point to 68¾,” a trader said.

The trader went on to comment on the company’s Luxembourg-linked 8 1/8% notes due 2023, which were up a point from yesterday’s levels and traded at 32½.

HCA Holdings Inc.’s 5 3/8% notes due 2025 were up 3/8 of a point to 103 7/8 on “a half-dozen trades,” a market source said.

Indicators end firm

Given the overall positive tone of the market, market indicators were also ticking upward.

The KDP High Yield Daily index rose 12 basis points to 71.38. Yield, meanwhile, dropped 5 bps to 5.36%.

The Markit CDX High Yield Series 27 index was at 104.21 bid, 104.31 offered, up 0.18 points on the day.

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