Primary expects zero December new issuance; energy names up; Staples jumps; Envision down

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 7 – The domestic primary market remained shuttered throughout the week and prospects for new deal activity before the year draws to a close are now diminishing.

If no new paper comes to market, it will be the first month since to see no new issuance since Prospect News began tracking the high-yield market in 2001.

The average new deal volume in December for the past eight years has been $15.44 billion.

The week came to a brutal close with more carnage in equity markets.

However, crude oil futures and several names in the energy sector saw a reprieve on Friday in response to news that Russia would join OPEC in oil production cuts.

After a volatile week, California Resources Corp.’s 8% senior notes due 2022 and Whiting Petroleum Corp.’s 6 5/8% senior notes due 2026 closed Friday with gains but were only slightly improved week-over-week.

Outside of energy, Staples, Inc.’s 8½% senior notes due 2025 were in focus in the secondary space with the notes making large gains in high volume activity after an earnings beat.

However, Envision Healthcare Corp.’s 8¾% senior notes due 2026 (Caa1/B-), one of the last billion-dollar deals to price in 2018, continued to trade down in the secondary space with the notes now almost 10 points below their issue price.

Shuttered primary

The shutters remained down in the new issue market on Friday and are unlikely to come up before the new year, sources say.

It would not be easy to motivate investors to take part in a new deal calendar during the brief time a potential late-year issuance window might remain open, an interval that some calculate to be as small as one more week.

Investors have realized meager returns, generally 0% to 2% at best, in the year to date, a senior syndicate banker recounted.

Playing a new deal calendar, which might provide a modest year-end improvement, could just as easily erode those meager returns, the source said.

Typical $15 billion

If December 2018 does post a goose egg, it will be the first month with no issuance since Prospect News began tracking the high-yield market in 2001.

The eight Decembers from 2010 through 2017, inclusive, averaged $15.44 billion of dollar-denominated, junk-rated issuance.

Three Decembers topped the $20 billion mark (2010, 2012 and 2013), while a fourth, December 2016, which posted $19.81 billion, came just shy of the mark.

The previous low amount of December issuance came in 2015: $3.33 billon. That month also saw the lowest deal volume – eight tranches.

December 2011, the second most anemic in terms of issuance totals in the period since 2010, saw $3.83 billion and the second-lowest December deal volume at 11 tranches.

The greatest amount of December issuance came, unsurprisingly, in the record-setting year of 2012. That month had $26.65 billion in 62 tranches come to market.

That December capped off the biggest year in the history of the market, $325.15 billion of issuance in 675 dollar-denominated, junk-rated tranches.

As a backdrop for the dramatic disappearance of December issuance, the year 2018 appears almost certain to be the first year to generate less than $200 billion of yearly issuance since 2009.

At Friday’s close the market had seen just $169.05 billion of 2018 issuance in 301 tranches.

Energy up on week

The roller-coaster ride in crude oil futures continued on Friday with the barrel price of WTI crude oil for January delivery closing the week with gains.

Bellwether energy names were on the rise along with it.

While crude oil futures saw a return to Monday’s settlement levels, several energy names were only slightly improved week-over-week after some wild swings.

California Resources 8% senior notes due 2022 were again the major volume movers in the secondary space, as they have been since late October.

The 8% notes were up about 3 points on Friday. They were quoted at 76½ bid, 77½ offered at the close with most trades between 77 and 77½, according to market sources.

More than $25 million of bonds were in play during Friday’s session.

While the notes saw large gains on Friday, they were only slightly improved on the week, adding just ½ point since the previous Friday’s close after rising and falling by more than 3 points during the week’s sessions.

They were quoted at 76 bid, 77 offered last Friday before the dramatic rise of crude oil futures on Monday.

Whiting Petroleum’s 6 5/8% senior notes due 2026 gained 2¼ points to close Friday at 97¼.

The notes were also volatile throughout the week, with the notes rising 3¼ points on Monday and falling 2 points on Thursday.

The notes were up 1¼ points week-over-week.

Crude oil futures saw a wild ride throughout the week with futures rising more than 4% on Monday over speculation Russia and OPEC would announce cuts and the Alberta province in Canada curbing production.

However, crude oil futures saw a precipitous drop later in the week as doubts surfaced.

OPEC announced an 800,000 barrel a day reduction in 2019 on Friday although the announcement did not specify cuts from non-member countries such as Russia, MarketWatch reported.

Crude oil futures settled on Friday at $52.61, an increase of $1.12 or 2.18%, after news broke that Russia would join OPEC in the production cuts.

Crude oil futures held onto most of the gains from Monday when crude oil futures rose 3.96% to settle at $52.95.

Staples jumps

Staples’ 8½% senior notes due 2025 saw large gains in active trading during Friday’s session after better than expected earnings, a market source said.

The paper was up 3½ points to trade at 92¾, a market source said.

More than $17 million of the bonds were on the tape by the late afternoon.

Staples reported an increase in revenue and adjusted EBITDA year-over-year.

Revenue, not including sales from related parties, was $2.678 billion versus revenue of $2.613 billion in the third quarter of 2017.

Adjusted EBITDA increased to $243 million from $193 million in the third quarter of 2017.

Envision down again

Envision Healthcare’s 8¾% senior notes due 2026 continued to lose footing in the secondary space.

The notes dropped more than 2 points in active trading on Friday.

The notes were quoted at 89¾ bid, 90¼ offered at the end of the session. They were quoted at 90¾ bid, 91¾ offered on Thursday, according to a market source.

The notes traded down to close the day at 89½, another source said.

More than $17 million of the bonds were in play during Friday’s session.

Envision Healthcare’s 8¾% notes due 2026 were one of the last large issuances to price in 2018 and have steadily traded down since hitting the secondary space.

Envision priced a $1,225,000,000 issue of the 8¾% senior notes at par on Sept. 28. Proceeds were used to help fund the buyout of the company by KKR.

There have only been two billion-dollar deals to price since Envision came to market.

Thursday outflows

Daily cash flows for the dedicated high-yield bond funds were relatively flat on Thursday although they still saw outflows, according to a trader.

High yield ETFs sustained $51 million of outflows on the day.

Actively managed high-yield funds saw $10 million of outflows.

News of those daily flows follows a Thursday afternoon report that the combined funds sustained $829 million of outflows in the week to Wednesday’s close, a heavier than expected weekly outflow, the trader said.

It is also worth noting that cash flows have turned negative in the leveraged loan market, widely perceived to have been raiding business from the junk bond market throughout 2018.

The loan funds saw $1.04 billion of outflows in the week to Wednesday’s close.

That trails $1.3 billion of outflows in the week to the Wednesday, Nov. 28 close, the source said.

And cash continued flowing out of the loan funds on Thursday, when they sustained a whopping $515 million of outflows on the day, the trader said.

Indexes mixed

Indexes were mixed on Friday although all closed the week with losses despite starting on strong footing on Monday.

The KDP High Yield Daily index was down 3 basis points on Friday to close the day at 68.22, a decrease of 6.62%.

The index was down 28 bps on Thursday and 4 bps on Tuesday after rising 20 bps on Monday.

The index was down 15 bps on the week after gaining 21 bps the previous week week.

The ICE BofAML US High Yield index saw gains on Friday yet remained in the red, which it returned to on Thursday after briefly popping back to the black earlier in the week.

The index gained 21.7 bps during the week’s final session leaving the year-to-date return at negative 0.194%.

The index dropped 63.3 bps on Thursday, putting it back in negative territory. The index dropped 18.3 bps on Tuesday after a 48 bps gain on Monday.

Monday’s gains returned the index to positive territory after it sunk into the red on Nov. 15 for the first time since June.

The index was down 11.9 bps on the week after a 40.6 bps gain on the week last week.

The CDX High Yield 30 index dropped 51 bps to close Friday at 103.2.

The index was down 18 bps on Thursday and 90 bps on Tuesday after a 32 bps gain on Monday. The index dropped 127 bps on the week after jumping 104.12 bps on the week the previous week.

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