Oil names negative; Sinclair, L Brands mixed; $10.4 billion of inflows; indexes better

By Paul A. Harris and James McCandless

San Antonio, Aug. 23 – The high -yield market finished the Aug. 19 week with a modestly active secondary, a quiet primary, positive fund flows and higher indexes.

Oil futures fell amid trade tensions, followed by Whiting Petroleum Corp.’s, California Resources Corp.’s and Chesapeake Energy Corp.’s paper.

Sinclair Broadcast Group Inc.’s notes differed in direction as the company announced the completion of a purchase.

L Brands, Inc.’s issues traded mixed after an analyst downgrade in response to its second-quarter earnings report.

Pharma name Endo International plc’s notes declined after a week of heightened attention over an opioid lawsuit settlement.

Fund flows have experienced a year-over-year reversal of fortune. And, high-yield indexes ended the week better than they started.

Closed for summer

The new issue market remained dormant on Friday, and is widely expected to stay inactive through the extended Labor Day holiday weekend in the United States, which gets underway following the Friday, Aug. 30 close.

There is visibility on $20 billion to $25 billion of merger and acquisition related issuance expected to come to the market after Labor Day, and before the end of 2019, a syndicate banker said.

There should also be a steady stream of debt refinancing deals, sources say.

However, much of the debt refinancing business will be opportunistic, and thus will hinge upon broader market conditions, they add.

Should the volatility that has rocked the global capital markets during the late summer continue into the fall – volatility related to trade war, Brexit uncertainty, and a weakening global economy – that stream of opportunistic deals could be thin, indeed, sources say.

Active: Sirius and oil names

The Sirius XM Radio Inc. 5 3/8% senior notes due July 2026 traded in decent size on Friday morning, according to a source, who had them unchanged on the morning at 106 bid.

Oil prices sustained a substantial drop on Friday as news broke on Friday that China would impose a 5% tariff on U.S. crude oil imports.

The barrel price of West Texas Intermediate crude for October 2019 delivery fell 2.13%, or $1.18 on Friday, to close at $54.17.

North Sea Brent crude oil futures for October delivery also closed lower, at $59.34 per barrel after a 58-cent loss.

High-yield energy bellwether California Resources Corp.’s 8% senior secured second-lien notes due December 2022 moved down 3½ points to 57 bid.

Denver-based independent oil and gas producer Whiting’s paper trailed.

The 6¼% senior notes due 2023 lost 2 points to close at 79 bid. The 6 5/8% notes due 2026 gave back 2¾ points to close at 75 bid.

Oklahoma City, Okla.-based peer Chesapeake Energy’s issues declined.

The 8% senior notes due 2025 lopped off 1¾ points to close at 75 bid.

Non-distressed energy names were also under some pressure during the Friday session.

The Antero Midstream Partners LP 5 3/8% senior notes due September 2024 were down a point at 93 5/8 bid in the morning, a trader said.

Sinclair closes acquisition

TV name Sinclair’s notes moved in different directions on Friday, traders said.

The Diamond Sports Group, LLC 6 5/8% senior notes due 2027 held level at 102¾ bid. The 5 3/8% senior notes due 2026 added ¼ point to close at 104¾ bid.

On Friday, the Hunt Valley, Md.-based television broadcasting company announced that it had completed the acquisition of 22 regional sports networks from Fox for $9.6 billion.

The deal was completed after the Department of Justice gave its consent.

L Brands mixed

L Brands’ issues moved lower to end the week, traders said

The 6¾% senior notes due 2036 dropped 2¼ points to close at 84¼ bid. The 7½% senior notes due 2029 rose 1¼ points to close at 100¼ bid.

On Friday, analysts at RBC downgraded the Columbus, Ohio-based retail name to sector perform from outperform.

The analysts cited its concern over growing inventories in its Victoria’s Secret division combined with the company’s plan to have fewer promotions during the holiday shopping season.

Late Wednesday, the name released its second-quarter earnings.

Earnings per share was pegged at a 24-cent profit, better than the expected 19 cents per share.

Net sales were dragging at $2.9 billion.

Victoria’s Secret sales were 9 percent lower compared to this time last year.

“They have to do something about Victoria’s Secret,” a trader said. “If it continues to trend that way, they might want to consider a sale.”

Endo declines

In the pharma space, Endo’s paper declined, market sources said.

The 6% senior notes due 2023 declined by 1¾ points to close at 66¼ bid. The Par Pharmaceutical Cos., Inc. 7½% senior secured notes due 2027 lost 1½ points to close at 93 bid.

This week, the Dublin-based drug manufacturer saw heightened positive attention after news broke on Tuesday that it had reached a $10 million settlement with two Ohio counties over opioid-related litigation.

The sector has been marred by legal challenges over its role in the opioid epidemic.

As part of the settlement, the company does not admit to any wrongdoing.

Inflows a reversal of fortune

The daily cash flows of the dedicated high-yield bond funds were positive on Thursday, according to a fixed-income investor.

High-yield ETFs saw $192 million of inflows on the day.

Actively managed high-yield funds saw $60 million of inflows on Thursday, the investor said.

News of Thursday's daily flows trails a late Thursday afternoon report that the combined high-yield funds sustained $1.5 billion of outflows in the week to the Wednesday, Aug. 21 close.

Also of note, the dedicated bank loan funds sustained $864 million of outflows in the week to the Oct. 21 close, the investor said.

It was the 40th consecutive weekly outflow from the bank loan funds, the source said, adding that those outflows have averaged $610 million, in size.

Year-over-year the two asset classes, high-yield bonds and leveraged loans, have undergone a reversal of fortunes, with respect to cash flows.

In 2019 to Thursday's close the combined high-yield bond funds have seen $10.4 billion of net inflows, whereas in 2018 to the Aug. 22 close the junk funds had undergone $23.6 billion of net outflows.

The loan funds, on the other hand, are deep in the red for 2019 to date. The loan funds have sustained $26.4 billion of net outflows in 2019 to the Aug. 22 close, the source said.

For the same period in 2018 the loan funds saw $13.8 billion of net inflows.

Indexes vary

The KDP High Yield Daily index finished the week up 3 basis points to 71.51 with the yield now at 5.51%

The index tacked on 17 bps on Thursday, added 11 bps on Wednesday and rose 8 bps on Tuesday.

The index has seen a collective gain of 57 bps this week.

The ICE BofAML US High Yield index lost 9.9 bps on Friday with the year-to-date return now at 10.569%.

The index gained 13.7 bps on Thursday, garnered 31.3 bps on Wednesday and improved by 11.4 bps on Tuesday.

The index continues to float above the 10% threshold reached Monday.

The CDX High Yield 30 index rose by 36.2 bps, hitting 105.7514 to close the week.

The index gained 34.44 bps on Thursday, climbed up 34.55 bps on Wednesday and added 35.47 bps on Tuesday.

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