Junk higher in third post-Brexit rebound; Intelsat up after financing; funds lose $1.6 billion

By Paul Deckelman and Paul A. Harris

New York, June 30 – The high-yield market enjoyed its third consecutive stronger session as it closed out the month of June on Thursday, continuing to rebound from the notable market weakness of last Friday and on Monday in the wake of global financial market turmoil following the United Kingdom’s unexpected vote to withdraw from the European Union.

Traders said that Intelsat SA’s bonds were busy and trading at mostly higher levels, aided by the news that the communications satellite company had completed a $490 million private placement financing, planning to use the proceeds to fund its pending tender offer for three series of notes.

They said other notable gainers on the day included AK Steel Holding Corp., Frontier Communications Corp. and DISH Network Corp.

Energy issues such as California Resources Corp. and Oasis Petroleum Inc. were seen adding to their gains of the past several sessions, even though oil prices turned southward.

The primary market stayed quiet, although some participants were speculating that the new-deal arena could see at least a modest rebound once the coming Independence Day holiday break is past. That break starts with Friday’s abbreviated session and continues with a full debt market shutdown on Monday in the United States.

Statistical market performance measures were trending higher on Thursday, their third consecutive stronger session. They had turned sharply upward on Tuesday after being lower all around for two straight sessions, last Friday and Monday. They then added to those gains on Wednesday and again on Thursday. It was the indicators’ fourth stronger session in the last six trading days.

However, another numerical gauge – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – saw its third consecutive weekly outflow and its fourth cash loss in the last six weeks, following two straight weeks of inflows market sources said Thursday.

Some $1.628 billion more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday, on top of the $766 million outflow reported last Thursday for the seven-day period ended June 22, which itself had followed a $1.802 billion outflow seen during the week ended June 15.

Cash awaiting a calendar

The post-Brexit quiet in the primary market carried through the Thursday session – no deals priced, no deals announced – and is expected to carry into the Independence Day holiday weekend which begins in the bond market with a recommended early close on Friday, sources say.

However the week ahead could bring at least a modest pickup in the new deal market, they add.

One syndicate official has visibility on about $2 billion of business that could surface in the form of drive-by deals. The source, who spoke to Prospect News on background Thursday afternoon, declined to furnish names or sectors.

“People have cash,” an investor said earlier in the day.

Given continued stability in the market, and just as important, in oil prices, there will almost certainly be a calendar, the investor said, adding that cash has been building against the backdrop of a secondary market in which there have been no offerings of any size.

However, as the market awaited the closely watched weekly fund flows report from Lipper US Fund Flows late Thursday afternoon, the most recent news on the daily cash flows for dedicated high-yield bond funds was negative.

High-yield ETFs sustained $71 million of outflows on Wednesday, the portfolio manager said.

Asset managers saw $105 million of outflows on the day.

Those numbers followed a massive $1.3 billion of daily outflows sustained by asset managers on Tuesday, which the investor chalked up to post-Brexit “freakout,” and added that the big Tuesday outflows from the actively managed funds were broad-based.

Intelsat shows improvement

In the secondary market, traders said that activity was muted on the last full trading day of the week before the holiday break – and the last full trading day of the month.

But one name which stood out, they said, was Intelsat.

“It was one of the notable ones, on the news they got new financing,” one of the traders said.

He said that that Luxembourg-based communications satellite company’s existing 8% senior secured first-lien notes due 2024 “initially traded off about 2 points but then they ended up ½ point,” closing out at 99½.

He said that its unsecured Intelsat Jackson Holdings SA and Intelsat (Luxembourg) SA bonds were also up on the news, with the latter’s 7¾% notes due 2021 “getting as high as 25” from earlier prices around the 20 mark.

Intelsat announced that it had sold $490 million of new 9½% senior secured notes at 98 in a private placement transaction aimed at raising funds to finance its current tender offer for three series of its existing bonds.

A second trader said that he had seen “nothing” trading in the new paper, noting that “it was a private deal, probably put away.”

He did say that the 8% notes due 2024 “traded pretty well, volume-wise,” with over $86 million seen having changed hands.

He saw those bonds finishing up by ¾ point on the day at 98¾ bid.

At another desk, a market source saw the 8% notes ending about unchanged on the day at 99 bid.

Intelsat Jackson’s 6 5/8% notes due 2022 were 3 point gainers on the day, ending at 68 bid.

Its 7½% notes due 2021 ended up 2¾ points at 69 bid.

Energy up though oil was down

Elsewhere, a trader said that “even though oil was off by $1.50, some of the energy names were better,” riding on the momentum they had built up over the previous two sessions when crude prices were surging.

For instance, he saw Houston-based exploration and production operator Oasis Petroleum’s 6 7/8% notes due 2022 better by ½ point at 92½ bid.

Another trader saw those bonds going home ¾ point better at 92¾ on brisk volume of over $13 million.

He said that California Resources’ 8% notes due 2022 up ¼ point at 71¾ bid, with over $21 million traded.

“CalRes 8s were pretty active around 71, which was about unchanged,” versus a 71 to 71½ bid range on Wednesday, a market source at another desk said.

“Bonanza Creek Energy Inc. was active, but kind of unchanged around 40½,” one of the traders said.

“There was not much price action.”

Over $13 million of the Denver-based E&P company’s bonds traded.

Market broadly higher

Away from Intelsat and the energy names, traders saw upside action in a number of familiar names.

AK Steel’s 7 5/8% notes due 2020 “traded on pretty good volume” of over $33 million, a trader said, rising by 1½ points to end around the 96¼ bid level.

He said he had seen no firm news out on the West Chester, Ohio-based specialty steels and alloy manufacturer that might explain the rise.

Stamford, Conn.-based wireline telecom operator Frontier Communications’ benchmark 11% notes due 2025 were 1 point better on the day at 104 bid, with over $26 million traded.

A trader saw Englewood, Colo.-based satellite television broadcaster DISH Network’s 7¾% notes due 2026 were ¾ point better at 103¾ bid.

Indicators extend gains

Statistical market performance measures were trending higher on Thursday, their third consecutive stronger session. They had turned sharply upward on Tuesday, after having been lower all around for two straight sessions, last Friday and Monday, and then added to those gains on Wednesday and again on Thursday. It was the indicators’ fourth stronger session in the last six trading days.

The KDP High Yield Index climbed by 21 basis points on Thursday to finish at 67.74, after having jumped by 40 bps on Wednesday. It was the index’s third straight gain and its fourth in the last six sessions.

Its yield came in by 5 bps on Thursday to 6.13% after tightening by 12 bps on Wednesday, its third straight narrowing.

The Markit Series 26 CDX Index was up by 7/16 point on Thursday, closing at 103 3/16 bid, 103¼ offered.

It was the index’s third straight gain, preceded by two consecutive sessions during which it had risen by 7/8 point.

The Merrill Lynch High Yield Index put up its third gain in a row on Thursday and its fifth upturn in the last seven sessions, advancing by 0.311% on top of the gains of 0.76% on Wednesday and 0.273% on Tuesday.

Those improvements followed two straight losses: the index had nosedived by 1.092% on Friday and then retreated by another 0.576% on Monday.

Thursday’s continued rebound raised its year-to-date return to 9.319% from 8.98% on Wednesday.

Despite the gain in the latest session, the index remained well down from its peak level for the year-to-date of 9.688%, which had been set just this past Thursday amid a short-lived market surge powered at least in part by the ultimately incorrect expectations that the Brexit vote would end with Britons voting to keep their nation’s long-time ties to the European Union.

© 2015 Prospect News.
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