Primary stays still; Tesla tops actives, Murray retreats again; funds lose $1.01 billion

By Paul Deckelman and Paul A. Harris

New York, Aug. 24 – The high-yield primary market was once again inactive on Thursday – its fourth consecutive idle day – with primaryside sources convinced that this status quo will last right through the Labor Day holiday weekend in the United States.

As has been the case for the last several sessions, the recent new eight-year notes issued by electric car manufacturer Tesla, Inc. were busily traded, in fact topping the day’s Most Actives list. Those notes continued to firm off the lows they had hit after having drifted downward over a few days following that megadeal’s pricing.

Traders saw little real activity in other recently priced deals, such as the one from office supply retailer Staples, Inc.

Away from the recent new issues, Murray Energy Corp.’s bonds – which plunged around 7 points in heavy trading on Wednesday on the news that a federal emergency declaration the beleaguered coal producer was seeking on behalf of one of its major customers might not be forthcoming – continued to retreat on Thursday, but on considerably reduced volume.

Supermarket operators – notably Fresh Market, Inc. but also including sector peers such as Albertsons Cos. LLC and SuperValu Inc.– were all seen lower as retailing giant Amazon.com announced that it plans to cut prices on a wide range of products at Whole Foods Market Inc. once it completes its acquisition of the upscale grocery store chain, raising the specter of a destructive price war in what it is already a difficult low-margin business.

Statistical market performance measures turned higher across the board on Thursday after being mixed over the previous four straight sessions and lower all around for one session before that.

However, another statistical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – fell for a second consecutive week as $1.01 billion more left those weekly reporting-only domestic funds than came into them during the week ended Wednesday. That followed an even bigger net outflow of $2.19 billion reported last Thursday. Those two net outflows, in turn, followed a pair of relative small net inflows seen in the two weeks before that (see related story elsewhere in this issue).

Primary stays quiet

The high-yield primary market remained quiet on Thursday as sources continued to forecast that new issue business has concluded for the summer and will resume following the extended Labor Day holiday weekend in the United States, which gets underway following the Friday, Sept. 1 close.

Forecasts for September vary, with some market watchers professing light issuance – the lowest forecast has been $15 billion – while others maintain outlooks that, barring a significant increase in volatility, September’s volume could approach that of an average September in the high-yield new issue market.

Over the past five years – a period encompassing the 2014 crash in crude oil prices – September high-yield issuance averaged $36.6 billion, according to Prospect News data.

Mixed Wednesday flows

Cash flows for dedicated high-yield bond funds were mixed on Wednesday, the most recent session for which data was available at press time.

High-yield ETFs sustained $208 million of inflows on the day.

Asset managers, though positive, were essentially flat, with $15 million of inflows on Wednesday.

The daily flow numbers appeared shortly before Lipper US Fund Flows reported $1.01 billion of new outflows from dedicated high-yield bond funds for the week to Wednesday’s close.

Tesla tops the actives list

In the secondary realm, a trader noted that “Tesla was still trading a lot,” adding that its new bonds bounced up “¼ point or so to 98 1/8.”

A market source at another desk saw more than $33 million of those 5.3% notes due 2025 changing hands during the day, easily topping the day’s Most Actives list.

He pegged the bonds at 98 3/16 bid, calling them up 5/16 point on the day.

Another trader saw the bonds trading between 97¾ and 98¼ bid during the session.

The Tesla bonds were bouncing after having eased slightly on Wednesday, which followed several upside sessions before that.

The Palo Alto, Calif.-based electric car manufacturer and energy storage products company had priced $1.8 billion of those notes at par just about two weeks ago, on Aug. 11, doing the biggest junk bond deal since satellite broadcaster Sirius XM Radio Inc.’s $2 billion two-part offering priced back on June 26.

The forward calendar transaction was upsized from an originally announced $1.5 billion.

However, the new Tesla bonds were treading water virtually from the get-go, trading below their par issue price pretty much from the time they hit the aftermarket and gradually losing ground to come down to around the 97ish area before starting to turn back upward on Monday and on Tuesday, weakening on Wednesday but rebounding again on Thursday.

Staples better – but not busy

Elsewhere among the recent deals, a trader said that the new Staples 8½% notes due 2025 were perhaps 1/8 point better on the day at 97 1/8 bid.

But he said that he had seen all of one big round-lot trade in the name, “so there was no real action there.”

The Framingham, Mass.-based office supplies retailer priced its regularly scheduled deal at par last Monday, Aug. 14, after first downsizing it from an original $1.6 billion and then downsizing it again from $1.3 billion to its eventual $1 billion size.

Those new Staples bonds had lost ground throughout last week, coming down to a 97ish context by last Friday and continuing their retreat on Monday and languishing around at lower levels again on Tuesday before finally turning back upward a little on Wednesday and again on Thursday, though on greatly reduced volume.

Murray Energy plunge slows

Away from the new deals, a trader said that Murray Energy’s 11% senior secured second-lien notes due 2021 were down another ¾ point on the day to 60¼ – “but on only a handful of trades.

“So it was not quite the hemorrhaging we had seen from yesterday [Wednesday].”

The smaller decline followed a lender presentation by the company that was thought to have gone fairly well and which may have steadied the bonds.

On Wednesday, the St. Clairsville, Ohio-based coal producer’s notes had gotten pounded down by 6 or 7 points on the day, ending at 61 bid after having dropped as low as 60 during the day, well down from prior levels in the upper 60s.

More than $32 million of those bonds changed hands on Monday, topping the Most Actives list for the day.

That plunge came amid reports that the Energy Department had denied a request from company chief executive officer Robert Murray to keep coal power plants running even in the case of bankruptcy. In his request, Murray said that closing FirstEnergy Solutions’ coal plants early – due to federal environmental rules – would cost 6,500 jobs and “would be a disaster for president Trump and for our coal mining communities.”

FirstEnergy Solutions – reportedly on the brink of bankruptcy – is a key customer of Murray Energy, thus the push for the two-year moratorium on closing coal-based power plants.

The Energy Department has the authority to enact emergency measures in regard to the operation of power plants. Usually, however, that is reserved for natural disasters, war or other scenarios where federal intervention is necessary.

Grocers go lower

Elsewhere, the news that online retailing giant Amazon plans to use its marketing muscle to cut prices on a wide variety of products available at upscale supermarket chain Whole Foods once it completes its acquisition of the latter company caused dismay among the bondholders of some of Whole Foods’ industry rivals, notably Fresh Market.

A trader noted that “TFM bonds were lower. I couldn’t figure it out – then I remembered the Amazon news – they’re going to cut all the prices for Whole Foods once that deal goes through, so that sector was lower.”

He saw St. Louis-based specialty supermarket operator Fresh Market’s 9¾% notes due 2023 “not terribly active – but the bonds were down 2½ points to 78 ½.

He noted that the issue had been trading around 81 or so when the market opened, then dropped as low as 77½ before coming back by 1 point from those lows, but still ending off on the day.

Among other supermarket names, he saw Albertsons’ 7¾% notes due 2026 at 92½, unchanged, while the Boise, Idaho–based grocery giant’s 6 5/8 notes due 2024 traded at 96, down 1 point.

But its 5¾% notes due 2025 “traded down just ¼” to 92½.

Both issues of Eden Prairie, Minn.-based food store operator SuperValu were meanwhile lower, with its 7¾% notes due 2022 down 2¼ points to 96¾ and its 6¾% notes due 2021 down 1 point at 98¾ bid.

PetSmart paper steadies

Also in the retailing space – though in this case more a supermarket for pet foods and other good things for dogs, cats, fish, birds, rabbits and hamsters – PetSmart Inc. bonds were actively traded on Thursday at mixed levels.

“PetSmart is always active,” a trader said, seeing the Phoenix-based company’s 5 7/8% notes due 2025 down about ¼ point at 89¾, as over $18 million traded.

He saw its 8 7/8% notes due 2025 up ¼ point to 84 bid while its 7 1/8% notes due 2023 were unchanged at 83 1/8, both on volume of around $13 million.

Pet Smart’s paper has gyrated around at mostly lower levels ever since the company’s Aug. 10 announcement that Michael J. Massey was stepping down from his post as chief executive officer.

Telecom trades better

Landline telecom names have recently been under pressure, but they seemed to have caught a bid on Thursday in active dealings.

A trader saw Windstream Holdings’ 7¾% notes due 2021 up a deuce on the day at 76½ bid, on turnover of more than $15 million.

The Little Rock, Ark.-based company’s 7¾% notes due 2020 gained 5/8 point on the day to end at 87¾ bid, on more than $11 million traded.

Stamford, Conn.-based sector peer Frontier Communications’ 11% notes due 2025 shot up by 1 7/8 points to 85 5/8 bid, with over $18 million traded.

Its 10½% notes due 2022 were 2 point gainers on the day at 88¾ bid, as over $12 million were traded.

Frontier’s 9¼% notes due 2021 did almost as well, up 1½ points on the day to end at 90½ bid, with over $8 million traded.

Algeco shows improvement

Algeco Scotsman’s 8½% notes due 2028 were also in comeback mode on Thursday, gaining 3/8 point to finish at 94½ bid, on volume of more than $13 million.

That upside movement stood in contrast to the action on Tuesday, when the bonds lost ½ point as more than $29 million traded, topping the Most Active List, and on Wednesday, when they plunged by 1 3/8 additional points down to 94 1/8 bid, although volume shrank to only around $3 million.

The bonds have gyrated ever since Tuesday’s announcement that the Baltimore-based maker of modular storage units will sell its Williams Scotsman unit for $1.1 billion, using some of the proceeds to repay debt and the rest for an acquisition.

The buyer is Los Angeles-based Double Eagle Acquisition Corp., which has lined up a $600 million senior secured revolving credit facility and $300 million of bridge financing for the deal.

Oil slides

A trader said that “oil was down a little bit – so Cal Res [California Resources’ 8% notes due 2022] traded down 1 point at 52 3/8, a recent low, I think.”

October-delivery West Texas Intermediate slid by 98 cents on the Nymex on Thursday, settling at $47.43 a barrel.

Indicators improve all around

Overall, a trader called Thursday’s session “a miserable day – there was no volume and no activity.

“And tomorrow [i.e. Friday] should be even worse.”

However, statistical market performance measures turned higher across the board on Thursday after being mixed over the previous four sessions and lower all around for one session before that.

The KDP Daily High Yield Index rose by 3 basis points on Thursday to end at 71.81, its second straight gain. It had firmed by 1 bp on Wednesday – its first upturn after five consecutive losing sessions, including Tuesday, when the index had retreated by 4 bps.

Its yield came in by 2 bps to 5.28%. On Wednesday it had tightened by 1 bp, its first narrowing after having been unchanged on Tuesday and widening out over four straight sessions before that.

The Markit CDX Series 28 High Yield Index pushed by around 1/8 point Thursday, going home at 106 25/32 bid, 106 13/16 offered, after losing 1/8 point on Wednesday.

And the Merrill Lynch North American High Yield Index improved for a fourth straight session, firming by 0.102% on top of its 0.038% rise on Wednesday.

The latest gain raised the index’s year-to-date return to 5.619%, from Wednesday’s close at 5.511%, 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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