Pacific Gas & Electric in focus on downgrade to junk; energy rally continues; Hornbeck, Bausch Health gain

By Abigail W. Adams

Portland, Me., Jan. 8 – The high-yield primary market remained dormant on Tuesday with no new deals in sight, despite another strong day for the market, sources said.

The gains continued in the secondary space with crude oil futures continuing their upward momentum and equity markets marking their third consecutive day of gains.

Names were seen better bid with the tone of the secondary space continuing to improve, sources said.

There was a dramatic uptick in activity in the secondary space. However, one name was responsible for the increase in trading volume – Pacific Gas & Electric Co.

While the overall market was up, Pacific Gas & Electric’s bonds were trading sharply lower in high-volume activity after S&P Global Ratings downgraded the struggling utility company to junk.

While Pacific Gas & Electric overshadowed all other activity in the space on Tuesday, California Resources Corp.’s 8% senior notes due 2022 were active and continuing to post gains alongside crude oil futures.

Hornbeck Offshore Services, Inc.’ 5 7/8% senior notes due 2020 were also trading up after the company announced a partial exchange offer.

Bausch Health Cos. Inc.’s junk bonds were active and again posting gains on Tuesday after the company presented at the JPMorgan healthcare conference.

The downgrade

Pacific Gas & Electric’s senior notes dominated activity in the secondary space accounting for more than $1 billion of the $6 billion in trading volume on the tape by the late afternoon.

The capital structure was trading sharply lower after S&P downgraded the struggling utility company to junk after it announced it was exploring filing for bankruptcy protection.

The bonds were under significant selling pressure on Tuesday with holders trying to get out, a market source said.

PG&E’s 6.05% senior notes due 2034 were the most active of the capital structure.

The 6.05% notes shaved off 5¾ point to trade down to 86¾, according to a market source. More than $316 million of the bonds were on the tape by the late afternoon.

The 3.3% senior notes due 2027 were down 2½ points to 79¼ with more than $151 million of the bonds on the tape.

The 3½% senior notes due 2020 were down 3 points to 89¼ with more than $111 million of the bonds on the tape.

The 3.95% notes due 2047 were down 1¼ point to 75 with more than $100 million on the tape. The 3½% notes due 2020 were down 3½ points to 81¼; the 4¾% notes due 2044 were down 2¾ points to 78¼; the 5.8% notes due 2037 were down 4 5/8 points to 84 3/8; the 2.95% senior notes due 2026 were down 2¼ points 77¾; and the 4¼% notes due 2023 were down 2½ points to 84½.

Each issue saw more than $50 million in trades, according to a market source.

S&P cut its rating on Pacific Gas & Electric to B from BBB- due to the utility company’s announcement that it was exploring bankruptcy due to liability from the California wildfires of 2017 and 2018.

S&P assigned a 1 recovery rating to the utility company’s unsecured debt. (See related article in this issue.)

Energy gains continue

While PG&E overshadowed all other activity in the secondary space, the market continued to firm with the rally in crude oil futures continuing.

California Resources’ 8% senior notes due 2022 continued to post gains. The notes were quoted at 78¼ bid, 73¼ offered on Tuesday and closed the day up another ½ point to 79.

More than $48 million of the bonds were on the tape by the late afternoon, making them the most actively traded issue outside of PG&E’s senior notes.

The notes have gained more than 9 points since the start of 2019.

Crude oil futures continued their rally on Tuesday, brushing up against the $50 threshold for the first time in several weeks.

The barrel price of WTI for February delivery traded as high as $49.95 before settling at $49.78, an increase of $1.26 or 2.6%.

Tuesday marked the seventh consecutive gain for crude oil futures after a brutal sell-off in December pushed futures to the low $40s.

Hornbeck’s exchange

Hornbeck Offshore Services’ 5 7/8% senior notes due 2020 popped after the company announced a partial exchange offer.

The 5 7/8% notes were up 3 points to 63 on the partial takeout, a market source said.

Hornbeck is offering to exchange up to $200 million of its 5 7/8% notes for new 9½% second-lien term loans due 2025 with a total consideration between $760 and $850 per $1,000 of notes.

The 5 7/8% notes currently have $375 million outstanding, according to Trace data.

Bausch improves

Bausch’s junk bonds continued to post gains in active trading on Tuesday after the specialty pharmaceutical company, formerly known as Valeant Pharmaceuticals, presented at the JPMorgan healthcare conference.

Bausch’s 9% notes due 2025 were up ¼ point to 105½ with more than $30 million of the bonds in play on Tuesday, a market source said.

Bausch’s 6 1/8% notes due 2025 were up ½ point to 93¼. More than $22 million of the bonds changed hands on Tuesday.

The 6 1/8% notes also rose more than 1 3/8 points in active trading on Monday.

Bausch presented at the JPMorgan healthcare conference on Monday.

The company announced that it expects revenue from its core products to double in 2019 and that it expects adjusted non-GAAP EBITDA to grow 5% to 8% during the 2018 to 2021 period.

Indexes gain

Indexes continued to post large gains on Tuesday, as they did on Monday after skyrocketing last Friday.

The KDP High Yield Daily index rose 42 bps to close Tuesday at 68.35 with the yield now 6.62%.

The index was up 49 bps on Monday after a 70 bps gain last Friday.

The ICE BofAML US High Yield index rose another 52.9 bps on Tuesday with the year-to-date return now 2.607%. The index was up 78.4 bps on Monday after jumping 109.9 bps last Friday.

The index closed 2018 with a year-to-date return of negative 2.265%.

The CDX High Yield 30 index rose 43 bps to close Tuesday at 103.85. The index was up 62 bps on Monday after jumping 137 bps on Friday.

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