Secondary rebounds; American Airlines in focus; Sprint gains; energy sector improves

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 10 – As the stock market whipsawed its way through the Tuesday session, with the S&P 500 closing almost 5% higher on the day, the high-yield primary market remained shuttered.

One deal is thought to still be in the market.

Del Monte Foods Inc. is seeking to place $575 million of seven-year senior secured notes (Caa2/CCC+), sources say.

However, for the time being the deal has gone quiet.

Meanwhile, the secondary space firmed on Tuesday with equities and oil futures rebounding.

The overall market was up 1 to 2 points with the energy sector gaining upwards of 10 points, a market source said.

American Airlines Group Inc.’s senior notes were rebounding alongside the broader market after the company rolled out a variety of cost-saving measures to combat the impact of the coronavirus.

Sprint Corp.’s senior notes were also posting gains in high-volume activity on Tuesday. The notes were among the few to hold up during Monday’s sell-off.

The energy sector was also staging a minor rebound as crude oil futures recovered.

However, while some names were up as much as 9 or 10 points, they were still firmly below their previous levels with widespread defaults in the sector expected.

American Airlines rebounds

American Airlines’ junk bonds were in focus on Tuesday with the notes making significant gains as the broader market rebounded.

American Airlines Group Inc.’s recently priced 3¾% senior notes due 2025 (B1/BB-/BB-) gained 6 points to close Tuesday at 88, according to a market source.

With more than $50 million in reported volume, the bonds were the most actively traded in the secondary space.

American Airline’s 5% senior notes due 2022 were also active and posting gains. The notes were up 4½ points to close Tuesday at 91½, according to a market source.

The notes saw more than $32 million in reported volume.

American Airlines junk bonds were getting crushed on coronavirus concerns.

However, they were rebounding on Tuesday after the airline announced a series of measures to combat the impact of the pandemic.

The airline announced it would cut 10% off peak summer international flying, which includes a 55% cut to trans-Pacific flights, and 7.5% off of domestic flights.

It also announced it was suspending flights to China and Hong Kong until October.

Sprint gains

Sprint’s senior notes were gaining in high-volume activity on Tuesday.

The 7 7/8% senior notes due 2023 were up almost 2 points to 114 with $34 million in reported volume, according to a market source.

The 6% senior notes due 2022 were up 1¾ points to close the day at 107 with about $25 million in reported volume.

The 6% notes returned to their former level prior to Monday’s sell-off.

Sprint was among the few names to hold up on Monday.

While the broader market was down double digits, Sprint’s junk bonds were only down 1 to 2 points, a market source previously said.

Sprint’s capital structure skyrocketed following regulatory approval for its merger with T-Mobile in February.

The merger may close as early as April 1 with T-Mobile beginning to lay off workers in preparation.

Energy rebounds

The energy sector was on the mend on Tuesday with crude oil futures rebounding.

While several names were posting gains on Tuesday, they were still well below their previous levels with widespread defaults expected.

While volume was light, Comstock Resources Inc.’s 7½% senior notes due 2025 were up 22½ points to 64.

Southwestern Energy Co.’s 6.2% senior notes due 2025 were up 16¾ point to 67.

EQT Corp.’s 3.9% senior notes due 2027 were up 10¾ points to 63¾.

Transocean Inc.’s 8% senior notes due 2027 rose 1¾ points to 52¾ with more than $22 million in reported volume.

Chesapeake Energy Corp.’s 11½% senior notes due 2025 were up 1½ points to 23½ with $22 million in reported volume.

Crude oil futures were on the rebound on Tuesday despite an escalation in Saudi Arabia and Russia’s price war.

The barrel price of WTI crude oil for April delivery settled at $34.36, an increase of $3.23 or 10.38%.

The barrel price of Brent crude oil for May delivery settled at $37.88, an increase of $3.52 or 10.24%.

While the energy sector improved on Tuesday, widespread defaults are expected.

BofA analysts are now assuming a 20% default rate in the sector in the next 12 months, according to a BofA Global Research report.

$11 million Monday inflows

The dedicated high-yield bond funds saw $11 million of net inflows on Monday, according to a market source.

High-yield ETFs saw $386 million of inflows on the day.

However, actively managed high-yield funds sustained $375 million of outflows on Monday, the source said.

The combined funds are tracking $1.54 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes rebound

Indexes rebounded after opening the week in the red.

The KDP High Yield Daily index gained 74 bps to close Tuesday at 66.62 with the yield now 6.41%. The index was down 2.96 bps on Monday.

The ICE BofAML US High Yield index gained 31.2 bps with the year-to-date return now negative 5.22%.

The index plummeted 353.8 bps on Monday with returns crashing past the negative 5% threshold after being in positive territory as recently as last week.

The CDX High Yield 30 index gained 75 bps to close Tuesday at 98.62. The index plummeted 454 bps to close Monday at 97.87.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.