Morning Commentary: Hospitals, pharmaceuticals trade lower in wake of ACA ruling in Texas

By Paul A. Harris

Portland, Ore., Dec. 17 – The high-yield index opened unchanged to slightly lower on Monday, according to a trader in New York.

With stock prices sharply lower at mid-morning, high-yield ETFs were off. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.2%, or 17 cents, at $82.99 per share.

A Friday ruling that the Affordable Care Act (ACA) is unconstitutional, from a federal court judge in Texas, weakened names in the health care space, the trader said.

Hospital companies, which had been big winners since the ACA, also known as Obamacare, went into effect, were lower on the news of the Friday ruling.

Bonds of Tenet Healthcare Corp. traded down ¾ of a point to 1 point.

The THC Escrow Corp. III 7% senior notes due August 2025 traded at par ¾ on Monday morning, down ¾ of a point, the trader said.

Hospital Corp. of America’s (HCA Inc.) bonds also slid on the news.

The HCA 5 5/8% senior notes due 2028 traded Monday morning at 99, about a point lower.

The downdraft also took hold of pharmaceutical names.

Bausch Health Cos. Inc. (formerly Valeant Pharmaceuticals) fell ¾ of a point to 1 point.

A $1 million amount of Valeant Pharmaceuticals International, Inc. 9¼% senior notes due 2026 traded at par ¾, down ¾, the trader said.

The judge in Texas, agreeing with Republican governors and Republican-led legislatures in 20 states, ruled that when Congress repealed the individual mandate tax penalty as part of late 2017 federal tax cuts, the ACA, in its entirety, was rendered unconstitutional.

Away from headline news, late-year low liquidity has taken hold of the market, amplified by investors who have chosen to lock in anemic 2018 returns, if any, sources say.

It is all but an accomplished fact that the 2018 primary market has run its course, with the last new issue pricing in late November, rendering December the first month in more than a decade to post zero new issuance, sources say.

Friday outflows

The cash flows of the dedicated high-yield bond funds were moderately negative on Friday, a trader said.

High-yield ETFs sustained $78 million of outflows on the day.

Actively managed high-yield funds saw $60 million outflows on Friday, the trader said.

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