Secondary gains continue; Altice soars on earnings; HCA, TransDigm gain on stimulus package

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 25 – The domestic high-yield primary market remained closed on Wednesday.

However, the secondary space was again on the rise with credit spreads tightening and the market, in general, up 2 to 3 points, sources said.

With Congress on the verge of passing a historic $2 trillion stimulus package, investors were making a return to risk assets.

The junk bonds of several potential benefactors from the stimulus package were in focus and posting large gains on Wednesday.

HCA Inc. 3½% senior notes due 2030 (Ba2/BB-/BB) saw large gains in high-volume activity on Wednesday with the for-profit operator of health care facilities one of the benefactors of Congress’ stimulus bill.

TransDigm Group Inc.’s 6¼% senior notes due 2026 also jumped in active trading with the commercial aerospace industry also expected to see some relief from the spending package.

Altice Europe NV’s senior notes also soared on Wednesday on the heels of better-than-expected fourth-quarter earnings.

Recent deals

With Wednesday's session producing no news in the high-yield new issue market, as expected, the primary market completed its third full week of zero issuance.

The most recent deals to clear the market came on March 4, when Charter Communications, Inc. issued $2.5 billion of 4½% unsecured paper in tranches of notes maturing in 2030 and 2032, and Science Applications International Corp. priced $400 million of 4 7/8% unsecured notes due in 2028.

The most recent euro-denominated deal to clear came all the way back on Feb. 20, nearly five weeks ago, when Catalent, Inc. priced €825 million of Catalent Pharma Solutions, Inc. 2 3/8% unsecured notes due 2028.

HCA gains

HCA’s 3½% senior notes due 2030 were making large gains in high-volume activity on Wednesday.

The 3½% notes were up 6 7/8 point to close the day at 88, according to a market source.

With $25 million in reported volume, the notes were among the most actively traded in the secondary space.

While volume was lighter, HCA’s 5 3/8% senior notes due 2025 rose 10 points to trade up to par on Wednesday.

The historic $2 trillion stimulus bill was helping to buoy the junk bonds of the for-profit healthcare facility operator, according to a market source.

While Congress had yet to pass the final bill, the stimulus package is believed to include up to $300 billion for hospitals, healthcare centers and healthcare providers.

TransDigm rises

TransDigm’s 6¼% senior notes due 2026 were also on the rise in high-volume activity on Wednesday with the company also expected to benefit from the stimulus package.

The 6¼% notes rose 5½ points to 97½ in the late afternoon, according to a market source.

The bonds saw more than $17 million in reported volume.

The 6¼% notes from the Ohio-based commercial and military aerospace components maker have been under pressure over the past two weeks as they experienced a trickle-down effect from the pullback in aviation.

Prior to March 12, the notes were trading on a 103-handle.

The stimulus package, which includes $500 billion for companies effected by the coronavirus, is expected to lift the commercial aerospace sector.

Altice’s earnings

Altice Europe’s senior notes soared on Wednesday after the company released better-than-expected earnings.

Altice’s 7½% senior notes due 2026 gained 8½ points to trade up to 95½ late Wednesday afternoon.

The notes saw more than $18 million in reported volume.

Altice’s 7 3/8% senior notes due 2026 rose 5½ points to 98½ with more than $17 million in reported volume, according to a market source.

While volume was light, Altice France’s 10½% senior notes due 2027 rose more than 11 points to 101¼.

Altice Europe reported better-than-expected fourth-quarter earnings on Tuesday, which covered a time period prior to the outbreak of the coronavirus.

Altice Europe reported an increase in revenue of 11% and an increase in group core operating profits of 14% in the fourth-quarter.

The telecommunications company also provided upbeat guidance for 2020 and announced plans to reduce its leverage to a debt-to-earnings ratio of 4x to 4.5x, Reuters reported.

Altice’s French division plans to tap a government program to support up to 60% of its workforce to negate the impact of the coronavirus, Reuters reported.

$485 million Tuesday outflows

The dedicated high-yield bond funds sustained $485 million of net outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs were positive on the day, with $115 million of inflows.

However, the actively managed high-yield funds sustained $600 million of outflows on Tuesday, the source said.

The combined funds are tracking $1.55 billion of net outflows for the week that will conclude at Wednesday's close, according to the market source.

Indexes extend gains

Indexes extended their gains on Wednesday after launching the week with losses.

The KDP High Yield Daily index gained 156 bps to close Wednesday at 57.82 with the yield now 9.49%. The index was up 78 bps on Tuesday after a 19 bps drop on Monday.

The ICE BofAML US High Yield index gained 140 bps with the year-to-date returns now negative 18.33%. The index gained 92 bps on Tuesday after breaking past the negative 20% year-to-date return threshold on Monday with a 183.3 bps drop.

The CDX High Yield 30 index jumped 200 bps to close Wednesday at 93.98.

The index skyrocketed 512 bps on Tuesday after dropping 70 bps on Monday.

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