Primary all quiet; PG&E lower on wildfire claim ruling; McDermott down after ratings cut

By James McCandless and Paul A. Harris

San Antonio, Aug. 19 – The high-yield primary market was quiet again on Monday as secondary activity was fixed on utilities and energy names.

Several of the syndicate desks are thinly staffed and are expected to remain so as the likelihood increases that summer 2019 issuance has run its course.

Sources say new-issue activity is likely to remain dormant until post-Labor Day, after which $20 billion to $25 billion of issuance related to mergers and acquisitions is in sight during 2019.

In the secondary market, PG&E Corp.’s notes ended lower after a bankruptcy judge ruled that wildfire claims against the company could proceed.

The 6.05% notes due 2034 dropped 1¾ points to close at 109½ bid. The 5.8% senior unsecured notes due 2037 also declined by 1¾ points to close at 107¼ bid.

In energy, McDermott International, Inc.’s issues dipped after Moody’s Investors Service lowered the corporate family and probability of default ratings for McDermott Technology (Americas), Inc.

Sector peer Enbridge Inc.’s paper traded lower amid turmoil over its pipeline contracting system.

Aerospace name TransDigm Group Inc.’s notes shifted upward.

Quiet primary

The primary market remained dormant on Monday.

Several of the syndicate desks are thinly staffed and expected to remain so as the likelihood increases that summer 2019 issuance has run its course.

New issue activity is unlikely to resume until after Labor Day, sources say.

In the post-Labor Day period up to the end of the year there is decent visibility on $20 billion to $25 billion of issuance related to mergers and acquisitions, a syndicate banker said.

There could also be a steady stream of opportunistic debt refinancings, pending a supportive backdrop in the financial markets, the source added.

PG&E declines

Utilities name PG&E’s longer-term notes ended the session under water, traders said.

The 6.05% notes due 2034 dropped 1¾ points to close at 109½ bid. The 5.8% senior unsecured notes due 2037 also declined by 1¾ points to close at 107¼ bid.

The notes saw about $57 million on the tape by Monday’s close.

On Friday, the bankruptcy judge overseeing the proceedings for the San Francisco-based electric utility ruled that the company could now face a jury trial for $18 billion in legal claims over a 2017 wildfire.

While the name was cleared of responsibility by investigators, the judge ruled that a jury trial could be heard after victims and insurers claimed to have evidence pointing to PG&E equipment as the cause of the fire.

The company’s common stock plunged 25% in reaction to the news.

Also on Friday, the judge rejected requests from two creditor groups to formally submit their restructuring proposals, arguing that competing plans would draw out the restructuring process longer than necessary.

“There was not a lot going on today, so this outpaced everything else,” a trader said. “It’s just more risk for them which makes the structure more attractive to distressed guys.”

McDermott dips

McDermott’s issues also saw a dip, market sources said.

The 10 5/8% senior unsecured notes due 2024 slid ¾ point to close at 70 bid.

The Houston-based energy construction name was another energy company seeing downgrades on Monday.

Moody’s lowered the corporate family and probability of default ratings for McDermott Technology (Americas), Inc.

It also cut issue-level ratings.

Moody’s cited an “increase in costs to complete a number of projects and the lower than expected proceeds from asset sales.”

The company’s notes are trading at their lowest levels since its issuance, according to market data.

Enbridge lower

Sector peer Enbridge’s long-term paper moved downward on Monday, traders said.

The 6¼% subordinated unsecured paper due 2078 fell ½ point to close at 102½ bid.

News broke on Monday that oil producer MEG Energy is the latest to oppose the Calgary, Alta.-based energy pipeline name’s plans to introduce long-term, fixed-volume contracts to its Mainline system.

Enbridge argues that, under the current system, demand to ship on the Mainline regularly exceeds capacity, leading to rationing.

“I think smaller producers think that they’ll be muscled out by the big guys,” a trader said.

TransDigm up

Elsewhere, TransDigm’s notes were on an upward trend, market sources said.

The 6¼% senior secured notes due 2026 gained ¼ point to close at 106¾ bid.

The Cleveland-based airplane parts manufacturer’s notes were heavily traded, with about $11 million changing hands during the session, though there was no news behind the soaring activity.

In its second-quarter earnings report, the company reported a $2.57 per share profit and announced a special dividend of $30 per share.

Indexes gain

Three high-yield indexes started the week on better footing.

The KDP High Yield Daily index gained 18 basis points to settle at 71.12 with the yield now at 5.56%.

The index gained 2 bps on Friday, fell 9 bps on Thursday and dropped 13 bps on Wednesday.

The ICE BofAML US High Yield index added 26.4 bps on Monday with the year-to-date return now 10.057%.

The index shot up 18.9 bps on Friday, picked up 2 bps on Thursday and sank 52.7 bps on Wednesday.

The index was last above the 10% threshold last Tuesday.

The CDX High Yield 30 index added 35 bps to close Monday at 106.3011.

The index rose 58 bps on Friday, garnered another 20 bps on Thursday and lost 102 bps on Wednesday.

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