Yum! reopens primary; Ford, Occidental Petroleum dominate; Western Midstream distressed

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 30 – After being closed for nearly a month, the domestic high-yield new issue market reopened on Monday.

Yum! Brands, LLC priced an upsized $600 million issue of five-year senior notes (B1/B+) in a Monday drive-by.

Meanwhile, the secondary space continued to firm with credit markets improving. However, the gains were not felt equally across sectors.

Energy continued to take a beating with WTI crude oil futures briefly dipping below $20 a barrel in intraday trading.

While losses continued to mount for the energy sector, liquidity remained an issue with few names active in the secondary space, a market source said.

The exception were the fallen angels.

Occidental Petroleum Corp.’s senior notes remained major volume movers in the secondary space with the notes mixed.

Occidental’s subsidiary Western Midstream Operating, LP's recently priced senior notes were squarely in distressed territory after becoming a fully junk-rated company as recently as last week.

Outside of energy, Ford Motor Co.’s senior notes continued to post gains in high-volume activity with the fallen angel presenting an opportunity to high-yield investors.

Yum! upsized and tight

After being closed for nearly a month, sidelined by volatility related to the global coronavirus pandemic, the high-yield new issue market reopened on Monday as Yum! Brands, LLC drove through with a deal that priced upsized and tight.

The Louisville, Ky.-based fast food company priced a $600 million issue of five-year senior notes (B1/B+) at par to yield 7¾%.

The issue size increased from $500 million.

The yield printed at the tight end of the 7¾% to 8% yield talk.

Earlier guidance was in the 7¾% area, according to an investor who added that the deal was playing to orders in excess of $3.5 billion at that guidance.

Previous to Yum! Brands, the most recent issues to clear the high-yield primary 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.

Occidental mixed

Occidental Petroleum’s senior notes continued to see high-volume activity in the secondary space.

However, the notes were following different trajectories.

Occidental’s 2.9% senior notes due 2024 were trading down on Monday.

The notes dropped about ½ point to close Monday at 54 7/8, according to a market source.

The bonds had more than $23 million in reported volume by the late afternoon.

Occidental’s 2.7% senior notes due 2022 continued their upward trajectory with the notes gaining another 1¼ points to 71¼, according to a market source.

There were more than $17 million of the notes on the tape by the late afternoon.

The short-duration notes will trade with a higher dollar-price due to greater investor confidence they will be covered at maturity, sources said.

However, both issues were trading with yields of more than 18%.

Western Midstream in distress

Western Midstream’s recently priced senior notes were active on Monday and trading squarely in distressed territory with the company becoming fully junk rated last week.

Western Midstream’s 3.1% senior notes due 2025 dropped to the high 40s on Monday.

The notes were changing hands in a 48 to 49½ context in active trading, a market source said.

There was about $17.5 million in reported volume during Monday’s session.

The 4.05% senior notes due 2030 dropped to a 40-handle on Monday and stood poised to close the day at 40 5/8, a source said.

The bonds had $17 million in reported volume.

While less active, Western Midstream’s 5.25% senior notes due 2050 traded as low as 36½ on Monday.

The bonds were trading around par heading into March, a market source said.

The Woodlands, Tex.-based owner and operator of midstream energy assets priced a $3.5 billion, four-tranche offering, which included the 3.1% notes, the 4.05% notes and the 5.25% notes, on Jan. 10.

The deal included a $1 billion tranche of the 3.1% notes which priced at 99.962 with a spread of 145 bps, a $1.2 billion tranche of the 4.05% notes which priced at 99.9 with a spread of 220 bps and a $1 billion tranche of the 5.25% notes which priced at 99.442 with a spread of 295 bps.

The notes were split-rated when they priced.

Fitch Ratings cut Western Midstream, a subsidiary of Occidental Petroleum, to BB+ from BBB- and S&P downgraded the company to BB+ from BBB- last week.

S&P cited lower cash flow due to depressed commodity prices which will affect its ability to deleverage as planned as cause for the downgrade.

Fitch said the downgrade reflected the deterioration of Western Midstream’s credit quality following the downgrade of parent company Occidental Petroleum, Prospect News reported.

Ford gains continue

Ford’s senior notes continued to dominate activity in the secondary space with the notes continuing to improve.

Ford’s 5.113% senior notes due 2029 gained 5 points to finish at 85 during Monday’s session, according to a market source.

With $26 million in reported volume heading into the market close, the notes were the most actively traded issue in the secondary space.

Ford’s 4¼% senior notes due 2022 gained 4½ points to close Monday at 93¼.

There was more than $22 million in reported volume heading into the market close.

Ford’s 4.063% senior notes due 2024 rose 3 points to 89 with about $19 million in reported volume.

Ford’s senior notes have been active and making gains since the struggling automaker became a fallen angel last week.

The notes have provided an opportunity to high-yield investors in search of good yields from higher-quality credits, sources said.

While Ford’s $35.8 billion of debt will move to the high-yield index, ICE Data Services will not be rebalancing their fixed income indexes, including its investment-grade and high-yield benchmarks, until April 30.

The delay in rebalancing has allowed several passive funds to forgo forced selling that would typically drag the notes down, a source said.

$398 million Friday inflows

The dedicated high-yield bond funds had $398 million of daily net inflows on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield exchange-traded funds were modestly negative, sustaining $17 million of outflows on the day.

Actively managed high-yield funds, meanwhile, saw a solid $415 million of inflows on Friday, the source added.

The combined funds, having sustained $19.2 billion of outflows over the past five weeks, are tracking $2.46 billion of inflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes gain

Indexes continued to gain on Monday after all posted cumulative gains last week.

The KDP High Yield Daily index rose 61 bps to close Monday at 61.01 with the yield now 8.24%.

The index saw a cumulative gain of 473 bps on the week last week.

The ICE BofAML US High Yield index gained 59 bps with the year-to-date returns now negative 13.671%.

The index was up 629.9 bps on the week last week.

The CDX High Yield 30 index gained 18 bps to close Monday at 95.14.

The index posted a cumulative gain of 740 bps on the week last week.

© 2015 Prospect News.
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