European primary active; TPC Group sells-off; Teva rebounds; California Resources improves

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 27 – The domestic high-yield primary market was dormant on Wednesday with the flurry of new issue activity over the past few weeks tempering due to the Thanksgiving holiday.

However, the European primary market was active with WEPA Group and Assemblin joining the forward calendar.

The secondary space was equally quiet on Wednesday with trading volume less than half the normal amount.

While liquidity was light, some names were active due to company-specific news.

TPC Group’s 10½% senior notes due 2024 were in focus on Wednesday with the notes selling off following an explosion at one of the company’s chemical plants.

Teva Pharmaceutical Industries’ junk bonds continued to see high-volume activity with the notes again rebounding after whipsawing between gains and losses throughout the week.

California Resources Corp.’s junk bonds also improved on Wednesday with analysts defending the company’s stock in the face of California’s moratorium on fracking.

Europe primary active

Although the pending long holiday weekend sidelined the dollar-denominated high-yield primary market on Wednesday, the European market was active.

WEPA Group circulated initial price talk in its €550 million two-part offering of senior secured notes (B1/BB-).

The deal features a tranche of eight-year non-call-three fixed-rate notes with initial talk in the 3¼% area and a tranche of seven-year non-call-one floating-rate notes with initial talk in the Euribor plus 325 basis points area.

Tranche sizes remain to be determined.

Meanwhile, Assemblin, a Stockholm-based specialist services provider, is marketing a €250 million offering of 5.5-year senior secured floating-rate notes (B2/B) on a roadshow set to wrap up on Thursday.

December

In the run-up to year’s end, the dollar-denominated new issue market should remain active, at least through the first two weeks of December, sources say.

There was a crush of issuers in mid-November, some of whom had been contemplating early 2020 passes at the market, but were subsequently coaxed from the sidelines by a jump in rates, as the yield on the 10-year Treasury moved from 1.69% on Halloween to 1.94% on Nov. 8.

Higher quality issuers whose bonds have the most sensitivity to Treasuries, among high-yield names, were in some cases motivated to move forward against the chance that a new reality in rates would significantly increase their cost of long-term capital, an investment banker explained.

Since spiking in early November, however, rates came off significantly, again, with the 10-year retreating to 1.77% just ahead of Thanksgiving weekend.

Deals remain to be done, in any case, said the banker, professing visibility on a couple of possibilities for the post-Thanksgiving week, but declining to offer names or industry sectors.

TPC sells off

TPC Group’s 10½% senior notes due 2024 were in focus on Wednesday with an explosion at one of the company’s chemical plants sparking a sell-off in the issue.

The 10½% notes dropped almost 7 points. They traded as low as 99 but stood poised to close the day at par ½, according to a market source.

With more than $18 million in reported volume, the notes were one of the most actively traded issues during Wednesday’s session.

The sell-off was sparked by an explosion at the chemical manufacturing company’s Port Neches, Texas plant, which injured three and forced a mandatory evacuation of the surrounding area.

The explosion involved a processing unit but the cause was unclear, according to a company press release.

TPC priced a $930 million issue of the 10½% notes at par in July.

Until Wednesday’s session, the deal was among the year’s outperformers with the notes leveling off on a 107 handle, according to a market source.

Teva rebounds

Teva’s junk bonds remained major volume movers in the secondary space on Wednesday with the notes rebounding from Tuesday’s session.

The recently priced 7 1/8% notes due 2025 erased the losses from the previous session and returned to a 101 handle, according to a market source.

The notes remained one of the most heavily traded issues in the secondary space with more than $16 million on the tape by the late afternoon.

Teva’s other issues also pared their losses. The 6¾% notes due 2028 were up almost 2 points to 98¼ on Wednesday.

The 6% notes were up almost 1 point to 98 1/8.

Teva’s junk bonds have ricocheted between gains and losses as investors digest a slew of headlines related to the company.

The 7 1/8% notes were lifted to 101 on Monday following news the generic drug maker was working with the U.S. Department of Justice to resolve its price-fixing probe.

However, the 7 1/8% notes sank below par on Tuesday after news broke Teva was issued a subpoena as part of the U.S. attorney’s office in the Eastern District of New York’s criminal investigation into pharmaceutical company’s marketing and distribution of opioids.

California Resources rises

California Resources’ junk bonds were on the rise on Wednesday.

The Los Angeles-based oil and gas company’s bellwether 8% senior notes due 2022 climbed 2 points in decent volume even as crude oil futures declined.

The notes closed Wednesday at 28½ with more than $11 million in reported volume, according to a market source.

The notes gained after an analyst defended the company’s stock, claiming California’s recent moratorium on permits for new oil wells that use fracking techniques will not impact California Resources’ operations.

The moratorium triggered a sell-off in California Resources’ 8% notes earlier in the month with many fearing energy companies in California would be subject to stricter regulations.

Inflows continue to junk ETFs

One measure of a vigorous appetite for risk, which could help to generate a calendar, is the recent sizable daily cash inflows to the high-yield ETFs.

The ETFs saw daily inflows of $525 million on Tuesday, the most recent session for which data was available at press time, according to a market source.

That follows a healthy $392 million of inflows on Monday.

Actively managed high-yield funds sustained $45 million of outflows on Tuesday, the source said.

With only Wednesday's totals remaining to be added to the report on weekly fund flows, expected from Lipper US Fund Flows, the combined high yield funds are tracking $336 million of net inflows in the week concluded Wednesday, the market source added.

Indexes

Indexes closed Wednesday on firm footing.

The KDP High Yield Daily index rose 13 basis points to close Wednesday at 70.86 with the yield now 5.20%.

The index rose 8 bps on Tuesday and 3 bps on Monday.

The CDX High Yield 30 index gained 9 bps to close Wednesday at 107.72. The index was up 18 bps on Tuesday and 35 bps on Monday.

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