Junk: CHS/Community Health active post-earnings; Service Properties, Emergent Bio jump

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 16 – The junk bond secondary space was heavy on Thursday with the downtrend in the market accelerating after the release of the Producer Price Index report, which came in hotter than expected.

The report continued to throw cold water on market optimism about a pause and even decrease in rates sparked by Federal Reserve chair Jerome Powell’s Feb. 2 press conference.

The cash bond market was down another 3/8 point on Thursday with ETF selling dragging down the broader market.

With the primary market pipeline pausing, earnings and topical news were the main drivers of activity in the space.

CHS/Community Health Systems, Inc.’s senior notes were mixed in heavy volume following the health care provider’s earnings announcement.

While the broader market was heavy, topical news sparked outsized gains in several outstanding issues.

Emergent BioSolutions Inc.’s 3 7/8% guaranteed senior notes due 2028 (Caa1/B) jumped almost 10 points with its Narcan spray set for over-the-counter approval.

Service Properties Trust’s capital structure rose 2 to 6 points after the real estate investment trust amended lease terms.

Still quiet

The dollar-denominated high-yield primary market failed to generate any news on Thursday.

It has been quiet since the beginning of the week.

Community Health mixed

Community Health’s capital structure was active following earnings; however, much like the report, its notes were mixed.

Community Health’s 4¾% senior secured notes due 2031 (B2/B) were the most heavily traded issue in the secondary space with the notes slightly firmer.

The 4¾% notes rose ¼ point to close the day at 79 5/8.

The yield was about 8¼%.

There was $33 million in reported volume.

However, the company’s other secured tranches were flat to weaker in active trade.

The 5 5/8% senior secured notes due 2027 were strong early in the session with the notes rising ½ point to 91, a source said.

However, they closed the day off about ¼ point with the notes trading in the 90 to 90½ context.

There was $17 million in reported volume.

The 8% senior secured notes due 2026 were largely unchanged at 98 7/8 and the 5¼% senior secured notes due 2030 closed the day at 83.

The secured tranches were trading with a yield between 8¼% to 8½%.

While Community Health’s stock jumped 50% post-earnings, the response of its bonds was muted with the company’s forward guidance mixed, a source said.

Community Health’s revenue guidance came in below estimates while its EBITDA guidance beat.

Emergent soars

Emergent BioSolutions’ 3 7/8% senior notes due 2028 made double-digit gains on Thursday following news its Narcan spray was on the path to over-the-counter approval.

The 3 7/8% notes jumped about 10 points in heavy volume to close the day at 65¼, a source said.

The yield fell to 12 7/8%.

There was $15 million in reported volume.

Emergent soared after a Food and Drug Administration advisory panel recommended approval for the over-the-counter use of the company’s Narcan spray, used to treat opioid overdoses.

Official approval is expected by March 29.

Thursday’s headlines were a double-whammy of credit-positive news for the company, a source said, with Emergent announcing the previous session an asset sale of its travel vaccine portfolio for $380 million.

Service Property rises

Service Property’s capital structure made strong gains on Thursday after the REIT announced amended lease terms.

The company’s junk bonds rose 2 to 6 points in active trade on the news, a source said.

Service Properties Trust’s guaranteed notes were the most active in the capital structure although they made the smallest gains.

The 7½% senior notes due 2025 (B1/BB) rose 2 points to close the day at par with the yield 7½%.

There was $17 million in reported volume.

The 5½% notes due 2027 (B1/BB) climbed 2½ points to close the day at 90¾ with the yield 7 7/8%.

There was $13 million in reported volume.

The 4.95% senior notes due 2029 (B2/B+) made the strongest gains with the notes rising 5½ points to close the day at 81.

The 4 3/8% senior notes due 2030 (B2/B+) gained 5 points to close the day at 77½.

The 3.95% senior notes due 2028 (B2/B+) were up 5 points to close the day at 81¾.

The 4¾% senior notes due 2026 (B2/B+) gained 4 points to close the day at 87½.

The unsecured notes were trading with yields of 8 5/8% to 8 7/8%.

Service Property’s capital structure was lifted following news the REIT had amended its lease terms with TravelCenters of America.

The lease terms, which were amended due to BP plc’s pending acquisition of TravelCenters, will generate additional revenue for the company, a source said.

Indexes

The KDP High Yield Daily index was down 14 points to close Thursday at 52.25 with the yield now 7.4%.

The index fell 11 points on Wednesday, 18 points on Tuesday and 9 points on Monday.

The ICE BofAML US High Yield index fell 35.4 basis points with the year-to-date return now 2.541%.

The index was down 17.1 bps on Wednesday and 16 bps on Tuesday after inching up 9.3 bps on Monday.

The CDX High Yield 30 index sank 52 bps to close Thursday at 102.

The index shaved off 2 bps on Wednesday and 8 bps on Tuesday after gaining 36 bps on Monday.

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