Cleveland-Cliffs on tap; American Airlines tanks; energy losses mount; HYG sees record outflow

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 26 – While the domestic high-yield primary market saw another quiet session Wednesday with coronavirus-induced volatility continuing to sideline deal making, the forward calendar did grow.

Cleveland-Cliffs Inc. plans to roll out a $950 million two-part offering of eight-year notes on an investor call on Thursday with pricing expected on Friday.

Meanwhile, it was a volatile day for the secondary space with the market opening Wednesday’s session with gains but closing out the day largely flat, sources said.

While the overall market was holding on Wednesday, losses continued to mount for the energy sector with WTI crude oil futures settling well below the $50 a barrel threshold.

Several of the deals from the energy sector that came in January are now trading with deep discounts.

Genesis Energy, LP and Genesis Energy Finance Corp.’s 7¾% senior notes due 2028 (B1/B+) and MEG Energy Corp.’s 7 1/8% senior notes due 2027 (B3/BB-/B+) are two recent deals that lost their premium over the past few sessions and are now trading firmly below par.

Chesapeake Energy Corp.’s 11½% senior notes due 2025 tanked following its earnings report.

American Airlines Group Inc.’s recently priced 3¾% senior notes due 2025 (B1/BB-/BB-) also continued to trade off on Wednesday with the travel sector particularly hard hit by investor concern over the spreading coronavirus.

However, Netflix, Inc.’s 4 3/8% senior notes due 2026 were among the major gainers of Wednesday’s session.

While the overall market had yet to see panicked selling, U.S. high-yield bond ETF $HYG saw a record $1.57 billion outflow on Tuesday.

Cleveland-Cliffs investor call

Coronavirus-related volatility served to mute activity in the high-yield primary market on Wednesday.

However, there was news.

Cleveland-Cliffs plans to roll out a $950 million two-part offering of eight-year notes to investors on a conference call set to get underway at 10:30 a.m. ET on Thursday.

The deal is set to price on Friday.

Credit Suisse is the lead left bookrunner.

Cleveland-Cliffs is one of two deals presently in the dollar-denominated new issue market.

Advantage Solutions Inc. is marketing $1.145 billion of notes: $345 million 6.5-year senior secured notes with initial talk mid-to-high 6% area and $800 million seven-year senior unsecured notes with initial talk high 10% area.

Meanwhile, the market awaits the formal announcement of $3.25 billion of senior secured notes (Ba2/BB/BB) from Bausch Health Americas Inc.

The two-part deal is expected to come in tranches of eight-year notes with initial guidance in the low 4% area and 10-year notes with initial guidance in the mid-to-high 4% area, a bond trader said.

Energy under water

While the high-yield secondary space has fared relatively well in the midst of coronavirus induced volatility that has rocked equities, losses continue to mount for the energy sector.

The sector was on the rebound in December and January and was responsible for the majority of returns of the index.

However, those fortunes have turned with the energy sector now down 4.69% year-to-date, according to a market source.

Several of the deals from the energy sector that priced in January when the sector was on the rebound have also turned south.

While volume was light, Genesis Energy’s 7¾% senior notes due 2028 traded off another 1½ point to 94½ on Wednesday.

The notes were trading on a 102 handle as recently as last week, a source said.

Genesis priced a $750 million issue of the 7¾% notes at par on Jan. 9.

MEG Energy’s 7 1/8% notes due 2027 also lost their premium in the secondary space.

The 7 1/8% notes shaved off 2 points to trade down to 97.75 on Wednesday.

The notes also closed out last week on a 102-handle.

MEG Energy priced a $1.2 billion issue of the 7 1/8% notes at par on Jan. 16.

Crude oil futures continued their downward descent on Wednesday. The barrel price of WTI crude oil for April delivery settled at $48.72, a decrease of $1.18 or 2.36%.

Chesapeake Energy’s earnings

Chesapeake Energy’s recently issued 11½% senior notes due 2025 tanked on Wednesday after the embattled oil and gas company reported earnings.

The 11½% notes dropped 6 points to 66¼ in high-volume activity, according to a market source.

The bonds saw more than $42.3 million in reported volume during Thursday’s session.

Chesapeake issued the 11½% notes in a distressed debt exchange in mid-December.

While volume has been light, the notes were trading in the mid-80s as recently as last week, a source said.

While Chesapeake Energy beat analyst expectations on EBITDA, depressed oil futures continue to weigh on the company, a source said.

EBITDA was $665 million versus analyst expectations for $640 million.

American Airlines sinks further

American Airlines recently priced 3¾% senior notes due 2025 continued to trade off on Wednesday as the spreading coronavirus continues to hit the travel industry.

The 3¾% notes dropped another 1¼ point with the notes poised to close Wednesday at 94¼, a market source said.

The notes were among the most actively traded in the secondary space with more than $38.5 million in reported volume.

The 3¾% notes have struggled since they priced at par on Feb. 20.

The notes immediately traded down as concern over the coronavirus began to weigh on investors.

Netflix gains

Netflix’s 4 3/8% senior notes due 2026 were among the bright spots in the secondary space on Wednesday.

The notes traded up almost 6 5/8 points to 112¾ in active trading, according to a market source.

Sources queried were unclear about the cause of the sudden spike in the notes.

HYG sees record $1.57 billion outflow

In news bearing upon the daily cash flows of the dedicated high-yield bond funds, there was a record $1.57 billion one-day outflow from the biggest U.S. high-yield bond ETF, $HYG, on Tuesday, market sources said.

In all, the junk ETFs sustained a whopping $1.83 billion of outflows on Tuesday, according to a trader.

Outflows sustained Tuesday by the actively managed high-yield accounts, the “real-money accounts,” were $120 million, modest in comparison to those of the ETFs, the trader remarked.

Indexes down again

Indexes continued their downward trajectory on Wednesday.

The KDP High Yield Daily index dropped 30 points to 70.75 on Wednesday with the yield now 5.23%. The index was down 14 bps on Tuesday and 39 bps on Monday.

The ICE BofAML US High Yield index dropped another 19.7 bps with the year-to-date return now 0.027%. The index was down 23.9 bps on Tuesday and sank 73.1 bps on Monday.

The CDX High Yield 30 index dropped 20 bps to close Wednesday at 106.57. The index was down 60 bps on Tuesday and 141 bps on Monday.

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