Secondary junk volatile following CPI data, closes off lows; Delta unchanged post-earnings

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 13 – An investor call was held on Wednesday for the only deal actively in the junk bond primary market, a financing transaction backing the buyout of Cornerstone Building Brands, Inc. by Clayton, Dubilier & Rice.

Meanwhile, it was another volatile day in the secondary space on Wednesday following the release of the latest Consumer Price Index report, which blew past expectations.

The 9.1% annual increase in inflation versus the 8.8% projected initially “sent the market reeling,” a source said.

ETF selling dragged the market down early in the session; however, ETF buying as the market recovered boosted the space which closed well off its lows.

Bids were lower but “sellers held their offers,” and the market stabilized as the session progressed, a source said.

While down as much as ¼ early in the session, the cash bond market was softer by about 1/8 point at the market close.

However, volume remained light with large, liquid issues continuing to drive activity in the space.

The degree of uncertainty in the market remains high with views mixed about the aggressiveness of the Federal Reserve’s rate hike schedule and the severity of a recession.

“The volatility will continue until we have some clarity,” a source said.

Earnings results will be a determining factor.

Delta Air Lines Inc.’s split-rated 7 3/8% notes due 2026 (Baa3/B+) were largely unchanged following mixed earnings.

Crude oil futures wavered between gains and losses on Wednesday after plummeting more than 7% the previous session.

While the steep drop in crude oil futures fueled the debate about whether inflation had peaked, energy names were softer alongside the commodity.

Transocean Inc.’s senior notes continued their strong downtrend on Wednesday.

Cornerstone

Initial price talk surfaced Wednesday on the only deal in Junktown.

On a Wednesday afternoon investor call Camelot Return Merger Sub Inc. talked a $600 million offering of six-year non-call-two senior secured notes (B2/B) with an 8¾% coupon at a discount to yield 10½%, sources said.

The deal, backing the buyout of Cornerstone Building Brands by Clayton, Dubilier & Rice is set to be in roadshow mode through Tuesday.

Also on the Wednesday call the bank loan tranche, a $410 million six-year first-lien term loan, was talked with a 562.5 basis points spread to SOFR at 93.

Elsewhere the market continues to anticipate the announcement of a deal backing the leveraged buyout of Tenneco Inc., by Apollo Global Management, Inc.

Pegasus Merger Co., an affiliate of Apollo, began pre-marketing $2 billion of secured notes and $1 billion of unsecured notes last week, sources say.

The deal is expected before the end of July, and might still materialize this week, they add.

The Consumer Price Index report will likely be an inhibiting factor to the regeneration of a new issue calendar, and a reasonably steady stream of primary market activity, a sellside source said, heading into Wednesday's close.

Delta’s earnings

With inflation and recession debates raging among market players and the degree of uncertainty high, earnings results will play a pivotal role in determining the market’s future direction, sources said.

However, few clues were garnered from Delta Air Lines’ earnings results, which were released prior to the market open on Wednesday.

Delta’s 7 3/8% senior notes due 2026 were relatively unchanged following mixed earnings and disappointing guidance.

The notes continued to trade on a 103-handle and stood poised to close the day at 103¼, according to a market source.

Delta reported revenue of $13.82 billion, which were largely in line with expectations.

However, the airline missed expectations for adjusted EBITDA and provided disappointing third-quarter guidance, a source said.

While earnings came in below expectations, Delta is committed to deleveraging itself to regain investment-grade status and reduced its adjusted net debt to $19.6 billion, Prospect News reported. (See related article in this issue.)

Energy soft

Energy names were again weaker on Wednesday as crude oil futures wavered between gains and losses following Tuesday’s steep decline.

Transocean’s senior notes continued their strong downtrend on Wednesday.

The offshore drilling contractor’s 8% debentures due 2027 (C/CCC-) dropped another ¾ point to close Wednesday at 57¼, according to a market source.

The notes have fallen about 8 points on the week.

Transocean’s 7½% senior notes due 2026 fell 4 points to close the day at 60¼.

West Texas Intermediate crude oil futures wavered between gains and losses following Tuesday’s sharp sell-off.

WTI crude oil futures settled at $96.30 on Wednesday, a minor increase after Tuesday’s steep drop of more than 7%, which again sent futures below $100.

While energy names were softer, trading in the space remained light, a source said.

Mixed Tuesday fund flows

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

Actively managed high-yield funds sustained $172 million of outflows on the day.

High-yield ETFs were positive on the day, posting a comparatively modest $25 million of inflows on Tuesday, the source said.

Indexes

The KDP High Yield Daily index fell 13 points to close Wednesday at 55.24 with the yield now 7.29%.

The index gained 8 points on Tuesday and 16 points on Monday.

The ICE BofAML US High Yield index fell 11.4 basis points with the year-to-date return now negative 12.566%.

The index gained 9.8 bps on Tuesday and 12.1 bps on Monday.

The CDX High Yield 30 index fell 52 bps to close Wednesday at 98.1.

The index was down 17 bps on Tuesday and 46 bps on Monday.

© 2015 Prospect News.
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