Junk primary idles; secondary levels off; Shelf Drilling losses mount; DirecTV lower

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 5 – The primary market sat idle on Thursday and is apt to remain so with the approach of the extended Columbus Day holiday weekend, which gets underway following Friday’s close, sources said.

The holiday-abbreviated week ahead also figures to be a quiet one in the primary market, a portfolio manager said.

Elsewhere, a New York-based bond trader said that new issuance will likely remain on hold pending some stability in risk-free rates.

The 10-year Treasury yield, which broke through 4.8% on Tuesday, had retreated to 4.72% by mid-afternoon on Thursday.

Ten-year government paper yielded 4.3% on Sept. 5, a month ago.

High-yield exchange-traded funds sustained $1.12 billion of daily cash outflows on Wednesday, their ninth largest outflow of the year and their largest outflow since Aug. 21, the bond trader said.

Meanwhile, it was a flat day in the secondary space with the cash bond market either side of unchanged after the heavy selling earlier in the week.

There was some opportunistic buying in the space with real money accounts attempting to buy paper on the cheap, a source said.

However, the buying activity was name specific with weaker credits continuing to suffer as recession and refinancing risks again weighed on the market, a source said.

While activity surrounding recent issues tempered, Shelf Drilling Holdings Ltd.’s 9 5/8% senior secured notes due 2029 (B3/B-/B) remained active with losses continuing to mount in the name.

With the primary pipeline dry, topical news pushed several outstanding issues into the spotlight.

DirecTV Holdings LLC and DirecTV Financing Co. Inc.’s 5 7/8% senior secured notes due 2027 (Ba3/BB) were lower in active trade after news broke that AT&T was considering selling its stake in the company.

The news may have sparked buying interest in DISH DBS Corp.’s 7¾% senior notes due 2026 (Caa2/B-), which jumped in heavy volume after heavy selling earlier in the week.

The sell-off in Michaels Cos., Inc.’s senior notes intensified on Thursday with the notes falling 3 to 4 points in heavy volume.

Shelf Drilling losses mount

Shelf Drilling’s recently priced 9 5/8% senior secured notes due 2029 continued to move lower in heavy volume on Thursday even as the broader market leveled off.

The 9 5/8% notes shed another ½ to ¾ point to break below a 96-handle.

The notes were trading in the 95¾ to 96¼ context heading into the market close, a source said.

The yield rose to about 10 5/8%.

There was $17 million in reported volume.

Shelf Drilling’s 9 5/8% notes initially put in a strong performance in the aftermarket after the $1.1 billion issue priced at 98.184 to yield 10 1/8% on Sept. 28.

The notes closed the previous week wrapped around 99 but have seen heavy selling over the past three sessions.

DirecTV lower

DirecTV’s 5 7/8% senior secured notes due 2027 were lower in heavy volume on Thursday following reports that AT&T was considering selling its 70% stake in the company.

The 5 7/8% notes were off ½ to ¾ point.

They were trading in the 87 to 87½ context heading into the market close with the yield just shy of 10%, according to a market source.

There was $28 million in reported volume.

AT&T will have the ability to sell its stake in the company after July 31, 2024.

The news may have been what sparked a buying frenzy in DISH’s 7¾% senior notes due 2026, which jumped 1 point after heavy selling earlier in the week, a source said.

The 7¾% notes jumped to close the day wrapped around 70 with the yield 23 1/8%.

There was $41 million in reported volume.

AT&T had previously explored a merger between DirecTV and DISH Network Corp.

News that DISH and EchoStar amended their merger agreement so EchoStar Corp. became the parent company sparked heavy selling in DISH on Monday with the 7¾% notes falling 4 points to a 69-handle.

Michaels sell-off intensifies

The sell-off in Michaels’ capital structure intensified on Thursday with both its secured and unsecured notes falling 3 to 4 points in heavy volume.

The 5¼% senior secured notes due 2028 (B2/CCC+) sank 3½ points to 74¾ by the market close, a source said.

The yield rose to 12¾%, a source said.

There was $31 million in reported volume.

The struggling retailer’s 7 7/8% senior notes due 2029 (Caa2/CCC) fell another 3½ points to close Thursday wrapped around 60.

The yield rose to 20 1/8%.

There was $18 million in reported volume.

The 7 7/8% notes are now down about 7 points on the week.

Michaels has seen heavy selling since S&P downgraded the company’s secured notes to CCC+ from B- and the company’s unsecured notes to CCC- from CCC.

S&P cited a slower recovery than previously forecast as the cause of the downgrade.

The market has begun to shun CCC credits, a source said.

Indexes

The KDP High Yield Daily index inched up 3 basis points to close Thursday at 48.87 with the yield 8.21%.

The index was down 2 bps on Wednesday, 42 bps on Tuesday and 27 bps on Monday.

The ICE BofAML US High Yield index added 8.1 bps with the year-to-date return now 4.499%.

The index was down 5 bps on Wednesday, 83.2 bps on Tuesday and 57.2 bps on Monday.

The CDX High Yield 30 index fell 20 bps to close Thursday at 99.80.

The index added 23 bps on Wednesday after falling 77 bps on Tuesday and 24 bps on Monday.

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