Parker Drilling files for bankruptcy; United Rentals improves; Enbridge, Intelsat gain

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 12 – The domestic high-yield primary market remained dormant on Wednesday, a status that is expected to persist until the new year.

The rate hike expected when the Federal Reserve meets next week combined with weak market technicals is keeping potential issuers on the sidelines in December, sources said.

Meanwhile, the secondary space firmed on Wednesday with the market in general up about ¼ point.

A “risk on” sentiment returned to the market with the typical high-volume names, such as Intelsat SA, trading higher, a market source.

Enbridge Inc.’s 6¼% senior notes due 2078 saw a large bump on the heels of a dividend increase and news that a pipeline project in Michigan will move forward.

United Rentals Inc.’s 6½% senior notes due 2026, one of the last billion-dollar issues in 2018, improved after the company affirmed revenue and announced forward guidance that beat expectations.

Parker Drilling Co.’s junk bonds were in focus and making gains after the company filed a pre-packaged bankruptcy to restructure its debt.

Quiet December

The primary market remained quiet on Wednesday and is expected to remain quiet until 2019, sources say.

Along with market volatility and weak technical forces characterized by continued negative cash flows from dedicated junk bond funds, a pending decision on interest rates expected from the Federal Reserve Bank’s Federal Open Market Committee in the middle part of the Dec. 17 week is inhibiting issuers, according to market sources.

Beyond the Fed’s decision on rates, expected to surface on Dec. 19, the primary market will almost certainly remain dormant until the new year.

Hence December, truncated by the late-month holidays, appears on track to become the first month since Prospect News started tracking high-yield data to see no new issuance in the high-yield bond market.

It would erase the record for lowest amount of monthly issuance currently belonging to August 2011, which saw $1.26 billion price in five junk-rated, dollar-denominated tranches, according to Prospect News data.

Volume movers

Trading in the secondary space continued to focus on the typical volume movers, which benefited from improved market conditions on Wednesday, a market source said.

Intelsat Jackson Holdings’ 8½% senior notes due 2024 gained about ¾ point in active trading.

The notes were seen changing hands at 99.25 with more than $18 million of the bonds in play, a market source said.

Intelsat stock also improved on Wednesday, rising more than 5%.

There did not appear to be any news that prompted the rise in the notes, a market source said.

The issue is a large liquid issue and is typically active even when overall volume in the market is thin.

Enbridge gains

Enbridge’s 6¼% senior notes due 2078 saw more than a 2½ point increase in active trading, a market source said.

The notes rose to trade at 91 5/8 with more than $17 million on the tape by mid-afternoon.

Enbridge announced on Tuesday a projected discounted cash flow per share on the upper half of guidance and a 10% increase in its dividend payment to shareholders in 2019.

The dividend hike was followed on Wednesday by news that Michigan governor Rick Snyder signed state legislation that will enable the construction of a new pipeline.

The legislation creates a state authority to oversee the construction of a new utility tunnel to replace its aging pipeline beneath the Straits of Mackinac.

United Rentals improves

While volume was light, United Rental’s 6½% senior notes due 2026 were slightly improved on Wednesday on a positive earnings report.

The notes were up about ½ point to par ¾.

The 6½% notes were among the last billion-dollar deals of 2018. United Rentals priced a $1.1 billion issue of the notes at par on Oct. 24.

The notes have been volatile in secondary trading and at one point traded north of 102 before spending much of November below par. The notes rose above par during Tuesday’s session, according to Trace data.

During its investors day United Rentals announced revenue expectations of $7.89 billion to $7.99 billion and adjusted EBITDA of $3.82 billion to $3.87 billion for 2018.

The company also projected revenue of $9.15 billion to $9.55 billion and adjusted EBITDA of $4.35 billion to $4.55 billion for 2019.

The company beat analyst expectations on both revenue and EBITDA, according to a market source.

Parker Drilling in focus

Parker Drilling’s junk bonds were in focus on Wednesday after the company made a pre-packaged Chapter 11 bankruptcy filing with a plan to reduce two-thirds of its funded debt.

The oil drilling services provider’s 7½% senior notes due 2020 were at one point the most actively traded issue in the secondary space.

The 7½% notes were volatile throughout the session, trading to a low of 45 and north of 60.

However, the notes were up about 1 point to 58 at mid-afternoon, a market source said.

More than $18 million of the bonds were in play during Wednesday’s session.

Parker Drilling’s 6¾% senior notes due 2022 were also volatile with the notes rising more than 4 points in intraday trading.

They were also seen trading around 58 in the mid-afternoon with about $13 million of the bonds on the tape, a market source said.

The rise in the notes may have been the result of holders consolidating their position as the company works to restructure its debt, a market source said.

Outflows moderate

The daily cash flows of dedicated high yield bond funds remained well in the red on Tuesday, a trader said.

However, Tuesday’s outflows, although hefty, were more moderate than those reported in the two previous sessions, the source added.

High-yield ETFs sustained $227 million of outflows on Tuesday, the trader said. That compares to $606 million of outflows on Monday and $313 million of outflows on Friday, Dec. 7.

Actively managed high-yield funds sustained $175 million of outflows on Tuesday, compared to $215 million of outflows on Monday and $475 million of outflows on Friday, Dec. 7.

Heading into the final day in the current weekly reporting period the combined funds were tracking $2.1 billion of outflows on the week, as of the Tuesday close, the trader said.

Indexes gain

Indexes saw gains on Wednesday after starting the week with losses.

The KDP High Yield Daily index rose 14 basis points to close Wednesday at 68.27 with the yield at 6.62%. The index was down 1 bps on Tuesday and 8 bps on Monday after a 15 bps drop on the week last week.

The ICE BofAML US High Yield index crossed into positive territory on Wednesday. The index rose 27.1 bps on Wednesday with the year-to-date return now 0.021%.

The index rose 18.3 bps on Tuesday while still remaining in the red.

The index dropped 23.9 bps on Monday after an 11.9 bps drop in the previous week.

The index dropped to negative returns on Nov. 15 for the first time since June.

The index had been in negative territory since Dec. 6 after briefly popping back to the black on Dec. 3.

The CDX High Yield 30 index gained 41 bps to close Wednesday at 103.64. The index was up 17 bps on Tuesday after a 14 bps drop on Monday.

The index was down 127 bps on the week last week.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.