Sell-off stymied; Uber in focus; Tesla improves; Boyd Gaming plummets

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 17 – Capital markets saw a minor reprieve on Tuesday following a step up in policy response to the economic impact of the coronavirus.

The high-grade primary market returned to action on Tuesday in light of the improved outlook and sources were cautiously optimistic that a high-yield issuer may soon step forward and try to get a deal done.

The high-yield secondary space recovered about ½ to ¾ point during the session as equities rebounded from Monday’s carnage, sources said.

However, volume remained light with liquidity still an issue, a market source said.

And the overall gains of the market were not shared equally across sectors with the energy space still in peril as crude oil futures continued to sink further below the $30 threshold.

The gaming sector also continued to suffer.

Boyd Gaming Corp.’s 4¾% senior notes due 2027 plummeted on Tuesday after the Las Vegas-based gaming and hospitality company announced the closure of casinos in four states.

Uber Technologies Inc.’s 8% senior notes due 2026 were in focus but trading largely sidewise after the ride-sharing company announced the suspension of its carpool option.

Tesla Inc.’s 5.3% senior notes due 2025 were improved in active trading after the electric car manufacturer began deliveries of its Model Y vehicle ahead of schedule.

Relief

More relief to the capital markets came Tuesday in the form of more provisions from the Federal Reserve Bank to boost liquidity in the markets and address credit concerns.

On Tuesday the Fed announced that it would establish a commercial paper funding facility to support the flow of credit to households and businesses.

Noting that commercial paper finances a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies, a syndicate banker said that the move was huge.

The commercial paper market is a key component in the liquidity of the credit markets, the banker said.

By 2:30 p.m. ET, the iShares iBoxx $ High Yield Corporate Bd (HYG) mid-morning share price was up 0.5%, at $76.03 per share, after having been down 0.57% at mid-morning.

The new issue market passed its ninth consecutive session with no activity.

The most recent session was March 4, when Charter Communications, Inc. issued $2.5 billion of 4½% unsecured paper in tranches of notes maturing in 2030 and 2032, and Science Applications International Corp. priced $400 million of 4 7/8% unsecured notes due in 2028.

The investment grade market saw a big burst of issuance on Tuesday, with issuers including Bank of America Corp., Consumers Energy Co., Dominion Energy, Inc., Entergy Corp., Exxon Mobil Corp., Oncor Electric Delivery Co. LLC, PepsiCo. Inc., Progressive Corp., Union Electric Co. and Verizon Communications Inc. bringing corporate bond deals.

High-grade issuers, who price on a spread to Treasuries, were being opportunistic. With the stock market opening higher in the United States, they decided to move in order to take advantage and lock in capital at phenomenal rates, sources said.

In such circumstances it's conceivable that a higher rated speculative issuer might try to get a deal done, a trader said.

However, pricing in the present volatility would be extremely difficult, the source said, and added that, depending upon the vagaries of the presently volatile markets, such a deal would be vulnerable to short sellers.

Boyd Gaming plummets

Boyd Gaming’s 4¾% senior notes due 2027 were among the major losers of Tuesday’s session with the notes plummeting as the overall market improved.

The 4¾% notes traded down 8½ points to 77 in the late afternoon with more than $10 million in reported volume, according to a market source.

The notes dropped on Tuesday after the gaming company announced it was closing casinos in four states due to an order by gaming regulators.

The company closed casinos in Pennsylvania, Ohio, Indiana and Illinois for two weeks to help prevent the spread of the coronavirus.

The gaming sector has been the second hardest hit after energy in the sell-off triggered by the outbreak of the coronavirus.

Uber in focus

Uber’s 8% senior notes due 2026 were in focus on Tuesday although the notes were largely trading sidewise after a steep drop during Monday’s session.

The 8% notes were changing hands in the 90½ to 91½ context in active trading on Tuesday, according to a market source.

There was more than $32 million in reported volume during Tuesday’s session, making it one of the most actively traded issues in the secondary space.

The notes dropped to the 90 to 91 range in Monday’s sell-off after closing out the previous week on a 96-handle.

While less active, Uber’s 7½% senior notes due 2023 traded down 2 points on Tuesday to a 92-handle.

The 7½% notes traded down to 94 on Monday after closing out last week around 98.

The San Francisco-based ride sharing company announced on Tuesday that it was suspending its carpool option in the U.S., Canada, London and Paris to help prevent the spread of the coronavirus.

Tesla improves

Tesla’s 5.3% senior notes due 2025 improved in active trading on Tuesday after the electric car manufacturer began deliveries of its Model Y vehicle.

The 5.3% notes traded up about ¾ point to close Tuesday at 87½, according to a market source.

There were more than $16 million of the bonds on the tape during Tuesday’s session.

The 5.3% notes pared some of their losses from Monday’s session when they traded down to an 86-handle.

Prior to Monday, the notes were trading in the low 90s, according to Trace data.

Tesla announced late Monday that it had begun deliveries of its Model Y cross-over six months ahead of schedule.

Cash flows moderate

The dedicated high-yield bond funds saw $146 million of net outflows on Monday, a market source said, a far more moderate amount than the previous session, Friday, March 13, which saw the combined funds sustained $1.465 billion, a market source said.

High-yield ETFs were relatively flat, with $9 million of inflows on the day.

Actively managed high-yield funds, however, sustained $155 million of outflows on Monday, according to the market source.

The combined funds are tracking $1.7 billion of net outflows for the week that will conclude with Wednesday's close, the market source added.

Indexes mixed

Indexes were mixed on Tuesday after launching the week with steep losses.

The KDP High Yield Daily index dropped 10 points to close Tuesday at 60.63 with the yield now 8.4%.

The index plummeted 218 bps on Monday.

The ICE BofAML US High Yield sank further into negative territory.

The index dropped 80.1 bps with year-to-date returns now negative 13.113%. The index plummeted 317.1 bps on Monday.

It was in positive territory as recently as a week and a half ago.

The CDX High Yield 30 index gained 90 bps to close Tuesday at 94.25. The index plummeted 452 bps on Monday.

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