Primary market on hold; Kraft Heinz, EQT active; Whiting rebounds; AMC sinks

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 28 – The domestic high-yield primary market remained dormant on Friday with coronavirus-induced volatility continuing to sideline new deal activity.

Bausch Health Americas Inc. was heard to be ready to roll out a $3.25 billion two-part offering and Cleveland-Cliffs Inc. and Advantage Solutions Inc. were marketing a $950 million and $1.145 billion offering, respectively.

However, those deals are believed to be on hold until the market stabilizes.

Meanwhile, the sell-off continued in the secondary space, which saw a dramatic repricing over the past week, sources said.

However, trading volumes remained relatively light given the sell-off, with panic still not taking hold of the market.

Fallen angels were in focus on Friday although with different trajectories.

Kraft Heinz Foods Co.’s senior notes continued to see high-volume activity with the notes firming as the broader market continued to trade off.

However, the downward momentum in EQT Corp.’s senior notes persisted following the company’s earnings report.

Whiting Petroleum Corp.’s 5¾% senior notes due 2021 pared some of their losses from Thursday’s session, although the notes were volatile and trading in a wide range, a source said.

AMC Entertainment Holdings Inc.’s 6 1/8% senior notes due 2027 were trading off following its fourth-quarter earnings report.

Quiet primary

The primary market remained shuttered on Friday.

Coronavirus is believed to have forestalled the marketing of at least one megadeal during the past week.

Bausch Health Americas was heard to be ready to roll out a $3.25 billion two-part senior secured offering (Ba2/BB/BB) in tranches of eight-year notes and 10-year notes.

A syndication effort was already underway for the company's $5.14 billion term loan.

Advantage Solutions and Cleveland-Cliffs were already in the market with deals during the volatile final week of February.

Advantage Solutions is selling $1.145 billion of notes in two tranches: $345 million 6.5-year senior secured notes and $800 million seven-year senior unsecured notes.

The most recent news in the dollar-denominated primary market came Wednesday from Cleveland-Cliffs which announced plans to market a $950 million two-part offering of eight-year notes in secured and unsecured tranches.

However, the new issue market is on hold, awaiting the return of some semblance of stability in the global capital markets before proceeding with business, sources say.

Finally, Netherlands-based geo data services provider Fugro NV became the first prospective issuer of 2020 to pull a deal, as it postponed its €500 million offering of five-year senior secured notes (B3/B) due to market conditions on Friday.

The outflows

Risk aversion, especially as expressed in huge successive outflows from the high-yield ETFs during the final week of February were grist for the mill in the high-yield market on Friday.

High-yield ETFs sustained $1.21 billion of outflows on Thursday, according to market sources.

That outflow trailed record daily outflows seen in the two prior sessions: negative $1.87 on Tuesday and negative $1.81 billion on Wednesday.

The fast money has taken flight from risk, and it's dragging the market lower, an asset manager told Prospect News on Friday.

The risk is genuine, the manager conceded.

Demand for the 10-year U.S. Treasury note was of sufficient intensity that it was yielding a record low 1.17% at mid-morning.

In the face of this volatility, however, the retail high-yield investor has been holding relatively steady, the manager asserted.

Fund flow numbers from Thursday seem to bear this out.

In contrast to the huge $1.21 billion of outflows sustained by ETFs, the actively managed high-yield funds saw just $20 million of outflows on the day, a market source said.

Of the approximately $4.2 billion of outflows the combined high yield funds sustained in the week that concluded at Wednesday's close, $3.4 billion flowed from the ETFs, the source added.

The most recent weekly outflow from the combined funds, $4.2 billion, was the biggest since the $4.93 billion outflow in the week ending Oct. 10, 2018, the market source said.

It's the sixth largest outflow on record (the record is $7.07 billion in the week ending Aug. 6, 2014), the source added.

The repricing

The high-yield secondary space saw a dramatic repricing over the past week with spreads widening 70 basis points to 430 bps through Wednesday’s close, according to a BofA Global Research report.

Spreads are now more than 100 bps wider from their recent tights.

Energy was the hardest hit by the sell-off in risk assets with the energy index down 3.4% in total returns.

Transportation and gaming also suffered heavy losses and were down 1.3% on the week, according to the report.

Kraft Heinz firms

Kraft Heinz’s senior notes continued to see high-volume activity on Friday.

However, the notes were firming after trading down throughout the week.

Kraft’s 4 3/8% senior notes due 2046 traded up almost 2 points to close Friday at 93.25, according to a market source.

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

The notes were trading on a 95-handle at the start of the week but traded down to 91 in the midst of Thursday’s sell-off.

The 5% senior notes due 2042 were up 1¾ points to close Friday just shy of 101, a source said. The notes started the week on a 103-handle.

The 4 7/8% senior notes due 2049 gained 1 point to close Friday at 99. The notes were north of par on Monday.

The notes have been major volume movers since Fitch Ratings and S&P Global Ratings downgraded the company to junk in mid-February.

EQT drops

Losses continued to mount for EQT’s recently priced 7% senior notes due 2030 and its 6 1/8% senior notes due 2025 following the natural gas and pipeline transportation company’s earnings report.

The 7% senior notes took off another 2 points to close Friday at 75. They closed out last week around 82.

EQT’s 6 1/8% senior notes were down more than 2 points to close Friday at 76.25. The notes closed out last week on an 83-handle.

EQT priced a $1 billion tranche of the 6 1/8% notes and a $750 million tranche of the 7% notes at par on Jan. 15.

The notes were under water shortly after pricing but the sell-off intensified following S&P’s and Fitch’s downgrade of the company to junk in early February.

The notes sank further after EQT reported earnings on Thursday.

In addition to reporting a quarterly loss of $1.18 billion, the company announced it was selling half its stake in pipeline company Equitrans Midstream.

Whiting rebounds

Whiting Petroleum’s 5¾% senior notes due 2021 pared some of their losses from Thursday’s session, although the notes were trading in a wide range.

The 5¾% notes traded to a high of 61 and a low of 55 on Friday. They were changing hands around 57½ heading into the market close, a source said.

The 5¾% notes tanked on Thursday following the oil exploration and production company’s fourth-quarter earnings announcement with the notes down as much as 14 points.

The company was heard to have hired advisers to review its capital structure and may be considering a distressed debt exchange, sources said.

However, there is also speculation the company may be considering bankruptcy.

AMC trades down

AMC’s 6 1/8% notes were trading off on Friday despite a fourth-quarter earnings beat.

The 6 1/8% notes were down 4 points and stood poised to close the day at 80, according to a market source.

While the movie theater chain operator beat analyst expectations on both the top and bottom lines, it slashed the dividend on its stock and reported declining theater attendance and revenue, sources said.

Indexes mixed, steep losses

Indexes were mixed on Friday. However, they all closed out the week with steep losses.

The KDP High Yield Daily index dropped 71 points to close Friday at 69.34 with the yield now 5.82%.

The index dropped 70 bps on Thursday, was down 30 bps on Wednesday, 14 bps on Tuesday and 39 bps on Monday.

The index saw a cumulative loss of 224 bps on the week.

The ICE BofAML US High Yield index dropped further into negative territory on Friday.

The index sank 71 bps with the year-to-date return now negative 1.58%.

The index was down 11.4 bps on Thursday, dropped 19.7 bps on Wednesday, was down 23.9 bps on Tuesday and sank 73.1 bps on Monday.

The index posted a cumulative loss of 199.1 bps on the week.

The CDX High Yield 30 index rose 10 bps to close Friday at 105.40. The index plummeted 127 bps on Thursday, dropped 20 bps on Wednesday, was down 60 bps on Tuesday and fell a steep 141 bps on Monday.

The index posted a cumulative loss of 338 bps on the week.

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