Vantage Drilling, RegionalCare in focus; California Resources gains; Bombardier drops

By Paul H. Harris and Abigail W. Adams

Portland, Me., Nov. 16 – The primary market was silent on Friday with no update on the one deal that remains on the forward calendar.

Atlantica Yield was expected to price a $300 million offering of eight-year senior notes (BB/BB+) during Friday’s session but there was radio silence on the deal as of press time.

In Europe, Co-operative Group Ltd. announced it would delay pricing its £250 million offering of five-year fixed-rate green notes, which was also expected during Friday’s session.

With the current condition of the market and the U.S. business days in the fourth quarter narrowing, some have questioned whether primary market activity is winding down for the year.

However, others see more deals materializing before the year comes to a close. Whether or not that will occur prior to the Thanksgiving holiday break remains to be seen.

Meanwhile, new paper from RegionalCare Hospital Partners Holdings, Inc./LifePoint Health, Inc. and Vantage Drilling International was in focus in the secondary space on Friday.

While RegionalCare’s 9¾% senior notes due December 2026 (Caa1/CCC+) were slightly weaker from Thursday’s close, they were trading well above their previous lows.

Vantage Drilling International’s 9¼% senior secured first-lien notes (Caa1/B) were coming down from their high after breaking for trade. However, they stood poised to close the day above par.

California Resources Corp.’s 8% senior secured second-lien notes due December 2022 were again major volume movers during Friday’s session, as they have been for much of the week.

While the 8% notes were making gains on Friday, they were still down on the week after also dropping the previous week.

Bombardier Inc.’s junk bonds saw high volume activity on Friday with the capital structure under pressure as stock sold-off on headline news.

Dead quiet primary

The Friday session generated just a trickle of news.

As might be expected, given recent market conditions, that news reflected the uncertainty that has taken hold of the primary market.

In Europe, Co-operative Group pushed pricing of its £250 million offering of five-year fixed-rate green notes into the Nov. 19 week. It had been expected to price Friday.

The deal, helmed by Barclays, ran an investor roadshow that wrapped up on Thursday.

The company also announced that its tender offer for up to £250 million of its 5 5/8% notes due 2020 was modestly oversubscribed at its Friday deadline.

The completion of the tender hinges on the successful placement of the notes, the company said.

One other deal, this one dollar denominated, had been seen as potential Friday business.

Atlantica Yield was expected to price a $300 million offering of eight-year senior notes (BB/BB+).

However, there was no word on the deal, a sell-side source said on Friday afternoon.

With official talk pending, guidance is in the low to mid 6% area, but thought to be widening, according to the source.

There was heard to be interest in the sevens, the source said.

Atlantica Yield and Co-operative Group were the only deals on the active forward calendar at Friday's close.

Run-up to 2019

With eight November sessions left to play out, as well as the coming month of December, some market sources have wondered aloud whether the 2018 high-yield primary market is just about played out.

A trader pointed to the new RegionalCare/LifePoint 9¾% senior notes due December 2026 (Caa1/CCC+), which priced on Wednesday. The notes were downsized and underwent covenant changes after having endured an extended stay in the market.

Price talk widened substantially with early talk placing the deal at 9¼%.

After seeing what happened to RegionalCare, some questioned if the market is not through for 2018, especially given how “sloppy” things are right now, a trader said.

“That’s a little overstated,” a syndicate banker asserted on Friday afternoon, upon hearing the “done for 2018” color.

There is definitely new issue business, including committed financings, remaining to be done before the end of the year, the banker assured.

However, whether or not any of it will materialize before Thanksgiving is an open question, the banker added, noting that there were deals expected to be launched into the market late in the Nov. 12 week, or early in the abbreviated Nov. 19 week.

They could still come before the holiday, which gets underway in the United States following an early close on Wednesday, Nov. 21., but might also be pushed into the post-holiday period, the banker said.

Of all the forces creating headwinds for the high-yield new issue market – rising rates, gyrating equities, threats of trade barriers – perhaps the most corrosive force at work upon the junk bond market is the precipitous fall and continued weakness of the price of crude oil, the banker said.

After a rough October in the high-yield market, November appeared to get off to a steadier start.

But the fall of crude oil prices – with the barrel price of West Texas Intermediate now down 18½% month to date – has caused high yield to continue to weaken.

“It brought down energy-related paper, and has been causing spreads to blow out across the market,” the banker said.

RegionalCare back up

RegionalCare’s 9¾% senior notes due 2026 continued to see high-volume trading on Friday.

While the notes still lagged their issue price, they were trading well above their lows during Thursday’s session.

The notes traded to a low of 97 3/8 but stood poised to close Friday at 99, a market source said.

However, most trades during the session were between 98 1/8 and 98 5/8, the source said.

With more than $47 million of the bonds on the tape by the late afternoon, they remained the most actively traded issue in the secondary space.

The 9¾% notes traded to a low of 96 on Thursday but closed the day at 99 1/8.

Sources questioned the trades at 96, noting that the majority of trades at that level were between a dealer and an account.

The true level of the notes was pegged more in the 98¾ to 99¼ range.

The notes have struggled since breaking for trade on Wednesday with the notes falling to 99¼ shortly after pricing.

RegionalCare and LifePoint Health priced a downsized $1,425,000,000 issue of the 9¾% notes at par on Wednesday.

The deal was decreased from $1,575,000,000 with $150 million of the proceeds shifted to a concurrent term loan, increasing its size to $4.35 billion from $4.2 billion.

The yield printed near the wide end of the 9½% to 9¾% yield talk, which had widened from earlier talk of 9% to 9¼%.

Vantage Drilling down

Vantage Drilling’s new 9¼% senior notes due 2023 were coming down from their highs after breaking for trade on Thursday.

However, they remained above their issue price.

The 9¼% notes were trading in a range of 99 5/8 and par 5/8 during Friday’s session. However, they stood poised to close the day at par ½, a market source said.

More than $32 million of the bonds were on the tape by late afternoon.

The notes were seen at par ¼ bid, 101 offered shortly after pricing late Thursday, closing the day at par ¾.

The deal was performing well, especially given the pressure the oil and gas sector has been under, a market source said.

Vantage priced an upsized $350 million issue of 9¼% senior secured first-lien notes (Caa1/B) at par on Thursday.

The issue size was increased from $300 million.

The yield printed at the tight end of the 9¼% to 9½% yield talk, which was also initial talk, a trader said.

California Resources up

California Resources 8% senior notes due 2022 remained among the most actively traded issues in the secondary space.

The notes made gains during Friday’s session, closing the day up ½ point at 84. More than $32 million of the bonds were on the tape by the late afternoon.

The barrel price of WTI crude oil for December delivery settled largely unchanged at $56.46 on Friday after a slight improvement on Thursday.

However, crude oil futures were down 6.2% on the week.

While the 8% notes saw some improvement, they were still down 2½ points on the week after a drop of 3½ points the previous week.

Bombardier under pressure

Bombardier’s capital structure was under pressure on Friday after regulatory scrutiny of an executive share sales program propelled the downward momentum of the notes.

Bombardier’s 7½% senior notes due 2024 were down about 1¾ points to 90½ on Friday with more than $30 million of the bonds on the tape in the late afternoon.

The 7½% senior notes due 2025 were down a little more than 2 points to 90 1/8.

The 6% senior notes shaved off almost 3 points to also trade down to 90 1/8.

Each issue saw more than $25 million of the bonds in play.

The 6 1/8% senior notes due 2023 dropped 3 3/8 point to 90 1/8 with more than $15 million of the bonds changing hands.

The notes have been under pressure since the Montreal-based plane and train manufacturer announced proceeds from an asset sale would be needed to meet cash flow estimates.

Investor jitters were heightened on Friday after news broke that regulatory authorities would be investigating the company’s program established to facilitate share sales by executives.

The yield on each of the issues is now above 9%, a market source said.

“Once it gets above a 9% issue, a different group of animals starts to look at it,” the source said.

Mixed Thursday flows

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

High-yield ETFs, which had been rocked with big outflows earlier in the week – negative $1.35 billion on Tuesday, the third largest daily outflow from the ETFs on record, and negative $784 million on Wednesday – saw $306 million of inflows on Thursday.

However actively managed high-yield funds sustained $100 million of outflows on Thursday, the source said.

News of Thursday’s daily flows follows a Thursday afternoon report that the combined funds saw $487 million of net inflows in the week to Wednesday’s close, according to Lipper US Fund Flows.

However, with roughly six weeks remaining in the run up to 2019, the combined dedicated high-yield bond funds appear poised to post their biggest ever yearly net outflow of cash, the trader said.

Year-to-date flows were negative $32.8 billion to Thursday’s close.

The previous record negative yearly flow was 2014’s negative $23.8 billion, the source said.

Indexes close week with losses

Indexes posted losses for the fifth consecutive session on Friday, marking a steep drop on the week.

The KDP High Yield Daily index dropped 12 basis points to close Friday at 68.44 with the yield now 6.56%.

The index dropped 27 bps on Thursday, 20 bps on Wednesday, and 19 bps on Tuesday for a cumulative 78 bps drop on the week.

The index dropped 20 bps last Friday while still posting a 12 bps gain on the week last week.

The ICE BofAML US High Yield index furthered its descent into negative territory on Friday. The index dropped 12.1 bps with the year-to-date return now a negative 0.196.

The index dropped to the negative for the first time since June on Thursday.

The index dropped 42.7 bps on Thursday, 34 bps on Wednesday and 41.8 bps on Tuesday for a 130.6 loss on the week.

The index fell 40.3 bps last Friday although it still marked a 10.4 bps gain on the week last week.

The CDX High Yield 30 index dropped 30 bps, closing Friday at 104.17. The index slid 7 bps on Thursday, 32 bps on Wednesday and 68 bps on Tuesday for a 137 bps drop on the week.

The index dropped 78 bps last Friday and was down 24 bps on the week last week.

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