Restart of primary eyed; PG&E rebounds; energy rally continues; Tesla active

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 9 – The primary market remained dormant on Wednesday. However, with the tone of the high-yield market continuing to improve there is speculation some new deal activity could be near at hand.

Meanwhile, Wednesday marked another strong day for the secondary space with the energy sector continuing to lead the overall market higher.

Several oil and gas names posted multi-point gains as crude oil futures catapulted above the closely watched $50 threshold on Wednesday.

California Resources Corp.’s 8% senior notes due 2022, Chesapeake Energy Corp.’s 8% senior notes due 2025 and 8% senior notes due 2027, and Denbury Resources Inc.’s 5½% senior notes due 2022 were among them.

The secondary space continued to see heavy trading volume on Wednesday with Pacific Gas & Electric Co.’s junk bonds leading the charge.

After trading sharply lower during Tuesday’s session following an S&P downgrade to junk status, the bonds from the struggling utility company were rebounding during Wednesday’s session.

Tesla Inc.’s 5.3% senior notes due 2025 were making slight gains in active trading on Wednesday with the notes buoyed by optimism surround U.S.-China trade talks as the electric car manufacturer begins building its new factory in Shanghai.

Primary restart eyed

The pace of the junk bond market quickened on Wednesday, according to a trader in New York who noted that the metrics which drove the market sharply lower at the turn of the year now appear to be improving.

We may be nearing a regeneration of the primary market, according to a syndicate banker, who also noted the improved backdrop in the financial markets.

What the market wants to see is a familiar issuer bringing a deal with a structure and a price which reflect the erosion of risk appetite that the market has seen since late November, sources say.

If such a deal received a solid execution, and played to surplus demand, the new issue machine could restart.

The $50 a barrel threshold

Several oil and gas names saw multi-point gains as crude oil futures catapulted above the closely watched $50 threshold on Wednesday.

California Resources’ 8% senior notes jumped 3½ points in active trading on Wednesday. The notes were quoted at 82¼ bid, 83¼ offered and traded up to 83, sources said. More than $26 million of the bonds were on the tape by the late afternoon.

The notes were quoted at 78¼ bid, 79¼ offered on Tuesday. The notes have now risen more than 12 points over the past three days.

Chesapeake Energy’s junk bonds were also posting multi-point gains in high-volume activity on Wednesday.

Chesapeake’s 8% senior notes due 2027 rose 4 points to 97 3/8 with more than $28 million of the bonds on the tape.

Chesapeake’s 8% senior notes due 2025 rose 3 points to 99½ with more than $30 million of the bonds on the tape.

In addition to a strong day for crude oil futures, Chesapeake Energy’s junk bonds were trading up after the petroleum and natural gas exploration and production company released its preliminary fourth quarter and end-of-year report.

While volume was light, Denbury Resources’ 5½% senior notes due 2022 rose 4¾ points to trade up to 72¼ on Wednesday.

The barrel price of WTI crude oil for February delivery settled at $52.36, an increase of $2.58 or 5.2%, on Wednesday.

PG&E rebounds

Pacific Gas & Electric’s junk bonds continued to dominate trading activity on Wednesday with the notes rebounding after a sharp decline during Tuesday’s session.

PG&E’s 6.05% senior notes due 2034 remained the most actively traded issue in the secondary space.

The notes rose 2 3/8 points to 89 7/8 with more than $280 million of the bonds on the tape. The notes sank 5¾ points on Tuesday.

PG&E’s 3.95% senior notes due 2047 rose ½ point to 76½ with more than $54 million of the bonds on the tape.

The notes dropped 1¼ points on Tuesday.

PG&E’s 3½% senior notes due 2020 were up 2 points to 91 1/8 with more than $50 million of the bonds changing hands.

The 4% notes due 2046 were up 1 point to 76 with more than $33 million of the bonds on the tape. The 4¼% notes due 2021 were up 2 points to 90½ with more than $30 million of the bonds in play.

The 3½% senior notes due 2025 were up 3 1/8 points to 83 5/8 with more than $30 million of the bonds on the tape.

PG&E’s capital structure was making gains after trading sharply lower on Tuesday with people reevaluating the struggling California utility company’s situation, a market source said.

The notes were trading down on Tuesday after S&P cut its rating on Pacific Gas & Electric to B from BBB- due to the utility company’s announcement that it was exploring bankruptcy due to liability from the California wildfires of 2017 and 2018.

People were reevaluating what the company’s liability from the wildfires actually would be and what type of bailout it would receive from the state, a source said.

Tesla active

Tesla’s 5.3% senior notes due 2025 were making slight gains in active trading on Wednesday.

The notes were up ½ point to 89 with more than $30 million of the bonds on the tape, according to a market source.

The activity comes as the electric car manufacturer breaks ground on its new manufacturing facility in Shanghai.

The notes were further buoyed by optimism surrounding trade talks between the U.S. and China.

Tuesday inflows

The technical picture of the leverage markets has undergone considerable improvement in the new year, sources say.

The daily cash flows of the dedicated high-yield bond funds were positive on Tuesday, according to a trader.

High-yield ETFs saw $669 million of inflows on the day.

Actively managed high-yield funds saw $235 million of inflows on Tuesday, the trader said.

The combined funds are tracking $723 million of net inflows in the week beginning with the Thursday, Jan. 2 open.

Also of note, actively managed bank loan funds saw $50 million of inflows on Tuesday, the first inflow that segment has seen since mid-November, the trader said.

Indexes mixed

Indexes were mixed on Wednesday with some continuing to post large gains while others posted minor losses.

The KDP High Yield Daily index rose 25 basis points to close Wednesday at 68.60 with the yield now 6.53%. The index was up 42 bps on Tuesday and 49 bps on Monday after a 70 bps gain last Friday.

The ICE BofAML US High Yield index rose another 52.8 bps on Wednesday with the year-to-date return now 3.135%.

The index was 52.9 bps on Tuesday and 78.4 bps on Monday after jumping 109.9 bps last Friday.

The index closed 2018 with a year-to-date return of negative 2.265%.

The CDX High Yield 30 index dropped 25 bps to close Wednesday at 103.6. The index rose 43 bps on Tuesday and 62 bps on Monday after jumping 137 bps on Friday.

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