Secondary pares losses from unprecedented week; Altice mixed; HCA bid up

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 13 –The domestic high-yield new issue market remained closed during the past week with sources unsure when new deal activity will resume.

Meanwhile, the tone in the secondary space was dramatically improved on Friday at the end of an unprecedented week that saw credit spreads blow out by more than 200 basis points in a matter of days.

The secondary space was up 2 to 3 points heading into the market close.

While the space ended on an upbeat note, it still saw steep losses on the week, sources said.

Altice’s senior notes were in focus on Friday although with different trajectories.

Altice France SA’s 7 3/8% senior notes due 2026 pared their losses from Thursday’s session and closed the day firmly above par.

However, the recently priced 6% senior notes due 2028 (Caa1/CCC+) issued by Ypso Finance BIS SA continued to tank in high-volume activity with the notes trading down to an 89 handle.

HCA Inc.’s 3½% senior notes due 2030 (Ba2/BB-/BB) were again major volume movers on Friday with the notes trading up although they closed the week with losses.

Waiting for volatility to subside

The high-yield new issue market remained closed during the past week, sidelined by the havoc wreaked upon the global capital markets by the Covid-19 pandemic.

The most recent deals to clear the 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.

The most recent euro-denominated deal to clear came all the way back on Feb. 20 when Catalent, Inc. priced €825 million of Catalent Pharma Solutions, Inc. 2 3/8% unsecured notes due 2028.

Following an announcement by the Federal Reserve Bank that it will inject liquidity into the Treasury market that will eventually total more than $1.5 trillion, markets turned dramatically positive on Friday.

The Dow Jones industrial average rose a whopping 9.29%, trailing Thursday's drop of just under 10%.

Asked whether such a robust turnaround might spark a reactivation of the high-yield new issue market in the week ahead, a syndicate official professed no knowledge of any pending activity.

“I would not expect anyone to bring a deal early in the week,” the banker said, adding that issuers and dealers will be keen to learn whether there is any follow-on to Friday's positive tone when markets reopen on Monday.

Unprecedented

The March 9 week will be long remembered on Wall Street with several historic events transpiring.

In the high-yield market, there has never before been such a sudden and violent movement in credit spreads, sources said.

Over the past week, spreads widened 237 bps to reach 742 bps as of Thursday’s close, according to a BofA Global Research report.

The move from the mid-300s to the mid-700s occurred in two months, a first for the market, according to the report.

“The speed and intensity of the correction in recent days has been unprecedented,” according to a Morgan Stanley US Credit Strategy Brief.

Spreads are now approaching recession levels after they were at cycle tights just a few days prior, the report stated.

The high-yield index was down 8% on the week through Thursday’s close.

Energy saw the biggest decline with spreads pushing north of 2,000 bps, according to the BofA report.

The gaming sector was the next hardest hit.

Altice mixed

Altice’s junk bonds were mixed in active trading on Friday.

Altice France’s 7 3/8% senior notes due 2026 pared their losses from Thursday’s session to close the day well above par.

The 7 3/8% notes were up 3 3/8 points to 102 in the late afternoon, according to a market source.

With more than $34 million in reported volume, they were one of the most actively traded issues of Friday’s session.

The notes sank to a 99 handle in high-volume activity on Thursday, the source said.

However, Altice’s 6% senior notes due 2028 continued their downward trajectory on Friday.

The notes traded down more than 8½ points to an 89-handle, a source said.

Altice priced a $1.225 billion tranche of the 6% notes at par on Jan. 23 as part of a dual-currency €2.9 billion equivalent megadeal.

In addition to a higher coupon, the 7 3/8% notes are secured whereas the 6% notes are unsecured, a market source said.

HCA bid up

HCA’s 3½% senior notes due 2030 were catching a bid on Friday.

The notes traded up 2½ points in high-volume activity to close the day at 96¾, according to a market source.

More than $27 million of the bonds were on the tape by the late afternoon.

The 3½% notes wavered between gains and losses throughout the turbulent week.

They closed out last week on a 99-handle, traded down to a 97-handle on Monday, pared their losses during Tuesday’s rebound to return to 99 only to sink as low as 94 in Thursday’s sell-off.

While the notes closed Friday with gains, they were still down 2 points on the week, a source said.

The notes were expected to sell off in a downturn in the market due to their tight pricing.

HCA priced a $2.7 billion issue of the 3½% notes at par on Feb. 12.

Modest Thursday outflows

The dedicated high-yield bond funds sustained a relatively modest $89 million of net daily outflows on Thursday, according to a market source.

High-yield ETFs experienced $84 million of outflows on the day.

Actively managed high-yield funds were essentially flat, with $5 million of Thursday outflows, the source said.

News of Thursday's daily flows follows a Thursday afternoon report that the combined funds sustained $4.94 billion of outflows in the week to Wednesday's close, according to Lipper US Fund Flows.

It capped a three-week run of outflows totaling a record $14.3 billion, according to a Prospect News analysis of the data.

As the dust began to settle on the historically turbulent week of March 9, the combined funds had undergone $11.75 billion of net outflows for 2020 to Thursday's close, the market source said.

By way of comparison, total net inflows for 2019 – a year in which junk returned 14% - were $18.8 billion.

Indexes gain on day, lose on week

Indexes closed Friday with gains. However, they closed the week with steep cumulative losses.

The KDP High Yield Daily index gained 40 points to close Friday at 63.81 with the yield now 7.34%.

The index dove 238 bps on Thursday and 83 bps on Wednesday after gaining 74 bps on Tuesday and dropping 2.96 bps on Monday.

The index posted a cumulative loss of 209.96 bps.

The ICE BofAML US High Yield index gained 30.6 bps with the year-to-date return now negative 9.141%.

The index plunged 309.2 bps on Thursday, sank 113.5 bps on Wednesday and gained 31.2 bps on Tuesday after plummeting 353.8 bps on Monday.

The index posted a cumulative loss of 714.7 bps on the week.

The index was in positive territory as recently as last week.

The CDX High Yield 30 index gained 492 bps to close Friday at 97.87. The index dropped 345 bps on Thursday and 222 bps on Wednesday, gained 75 bps on Tuesday and plunged 454 bps on Monday.

The index posted a cumulative loss of 454 bps on the week.

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