Elanco varies after animal health buyout news; oil names trend positive; PG&E rises

By James McCandless

San Antonio, Aug. 21 – The high-yield secondary market skewed positive for much of the Wednesday session, while the high-yield primary continued its moratorium on new paper issuance.

Elanco Animal Health Inc.’s notes varied in direction after news broke of its purchase of Bayer AG’s animal health unit.

Oil futures diverged, mirrored by Whiting Petroleum Corp.’s issues as Valaris plc and Diamond Offshore Drilling, Inc.’s paper improved.

Meanwhile, pharma name Endo International plc’s notes continued to rise based on Tuesday’s news that it had reached a lawsuit settlement.

PG&E Corp.’s issues saw a partial recovery after the last few day’s losses.

Quiet primary market

The primary market remained dormant on Wednesday, with no new issues announced or priced.

No new issue activity is expected prior to Tuesday, Sept. 3, when the market reopens following the extended Labor Day holiday weekend, sources say.

It's still too early to get a feel for the September calendar, a high-yield bond investor said on Wednesday.

The market feels open, but has recently shown a propensity to be rattled by financial news headlines, especially headlines conveying uncertainty over global trade, or a deepening of divisions between China and the United States, in their ongoing trade dispute.

Market watchers continue to parse statements from policymakers in the Federal Reserve Bank for signs as to if and how its Federal Open Market Committee (FOMC) might act on interest rates when the FOMC meets in September, sources say.

Those signs continued to be mixed on Wednesday when minutes on the late July meeting which generated a 25 basis points cut in the Fed Funds rate were released.

Those minutes depicted a FOMC that was divided on the July rate cut, with some members favoring an even deeper 50 bps cut, others favoring no cut at all, and still others in agreement with the decision the FOMC ultimately reached.

Hence, for investors hoping for further cuts in September to offset the negative impacts of the trade war with China and of a global economy that appears to be slowing the Fed's inclination with respect to economic stimulus, in the form of another lowering of the Fed Funds rate, remained unclear on Wednesday.

Elanco varies

Elanco’s notes were seen moving in different directions Wednesday, traders said.

The 4.9% senior notes due 2028 added 1¼ points to close at 111¼ bid. The 4.272% notes due 2023 lost ¾ point to close at 104 bid.

On Tuesday, news broke that the Greenfield, Ind.-based animal health company had reached a deal with Bayer to purchase its animal health unit for $7.6 billion.

As previously reported, the company will assume $6.5 billion in debt to facilitate the purchase.

Elanco expects to pay $5.32 billion in cash and $2.28 billion or about 68 million Elanco Animal Health common shares.

The transaction is expected to close in mid-2020.

Oil diverges

As oil futures diverged, distressed energy tranches trended upward, market sources said.

West Texas Intermediate crude oil futures for October delivery lost 45 cents to settle at $55.68 per barrel.

North Sea Brent crude oil futures for October delivery ended the session at $60.30 per barrel after a 27-cent pickup.

Denver-based independent oil and gas producer Whiting’s issues also saw mixed movement.

The 6¼% senior notes due 2023 slipped 1 point to close at 81½ bid. The 6 5/8% notes due 2026 gained 2½ points to close at 77¼ bid.

London-based contract driller Valaris’ paper moved up.

The 5.2% senior paper due 2025 gained 3 points to close at 60½ bid. The 7¾% paper due 2026 tacked on 4 points to close at 62½ bid.

Houston-based driller Diamond Offshore’s notes followed the positive trend.

The 3.45% senior notes due 2023 rose 1¼ points to close at 84 bid. The 4 7/8% senior notes shot up 3½ bid.

Endo rises

Meanwhile, Endo’s issues continued to rise, traders said.

The 6% senior notes due 2023 improved by ¼ point to close at 67½ bid. The Par Pharmaceutical Cos., Inc. 7½% senior secured notes due 2027 garnered 1 point to close at 95½ bid.

The 6% paper jumped up 5¾ points on Tuesday.

News broke on Tuesday that the Dublin-based generic drug producer had reached a settlement with two Ohio counties in lawsuits stemming from the opioid epidemic.

The company agreed to pay a total of $10 million to the entities and give an additional $1 million in medications.

As part of the settlement, the company and its subsidiaries will not admit to wrongdoing, fault or liability of any kind.

PG&E up

Elsewhere, utilities name PG&E’s issues saw a partial recovery, market sources said.

The 6.05% notes due 2034 gained 1½ points to close at 110 bid.

Over the last two trading days, the notes dropped 2¾ points.

The San Francisco-based bankrupt electric utility’s structure saw negative attention in reaction to a bankruptcy judge allowing wildfire victim lawsuits to proceed in court.

The development exposed the name to an additional $18 billion in liabilities.

Tuesday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Tuesday, according to an investor.

High-yield ETFs saw $99 million of inflows on the day.

Indexes up

Three high-yield indexes sustained gains on Wednesday.

The KDP High Yield Daily index added 11 basis points, ending the day at 71.31 with the yield now at 5.60%.

The index rose 8 bps on Tuesday, picked up 18 bps on Monday and gained 2 bps on Friday.

The ICE BofAML US High Yield index garnered 31.3 bps on Wednesday with the year-to-date return now at 10.528%.

The index improved by 11.4 bps on Tuesday, added 26.4 bps on Monday and gained 18.9 bps on Friday

The index continues to hold above the 10% threshold reached on Monday.

The CDX High Yield 30 index climbed up 34.55 bps, hitting 106.4954 by the Wednesday close.

The index tacked on 35.47 bps on Tuesday, added 35 bps on Monday and rose 58 bps on Friday.

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