Morning Commentary: Junk flat to slightly higher as health care names recover; EP Energy on deck

By Paul A. Harris

Portland, Ore., Nov. 17 – High-yield bonds were trading flat to up perhaps as much as ¼ point at mid-morning on Wednesday, a trader said.

A lot of the secondary market is ETF-driven, the source remarked, and added that secondary liquidity is a touch lower, especially if you are a seller.

Names in the health care sector, especially hospitals, were on the rebound, the trader said.

The sector took a big hit following election results in the United States last week, which saw Republicans – many of whom campaigned against the Affordable Care Act (ACA) – score big wins.

The HCA Inc. 5¼% senior secured notes due April 15, 2025 were up 3/8 point on Thursday morning at par ¼ bid, 101 offered, the trader said.

Wednesday's blowout deal from Tenet Healthcare Corp. continued to turn in a stellar secondary market performance but was a touch off its highs at mid-morning, the source said.

The Tenet 7½% senior secured second-lien notes due Jan. 1, 2022 (Ba3/B) were 103 bid at mid-morning, after having traded as high as 103½ late Wednesday.

The 7.25-year paper, which came in an upsized $750 million issue, priced at par and played to whopping $5.6 billion of orders, the trader said. The offering was originally sized at $500 million.

Talk on the deal started at 8% to 8¼%, as some were anticipating a possible triple hook rating. However when the double B/single B ratings materialized accounts piled in, the source recounted, adding that bond allocations were tough.

EP Energy on deck

Primary market activity was muted heading into the late part of the week.

EP Energy LLC is on deck with its upsized $500 million (from $350 million) offering of seven-year senior secured notes (B3/BB-) via left bookrunner Goldman Sachs & Co. The notes are talked to yield 8% to 8¼%, on top of initial guidance.

News could surface later Thursday on a trio of deals expected to price on Friday.

Talk is gapping higher on the Conduent Inc. $750 million eight-year notes offering (expected ratings B2/B+), the deal backing Xerox Corp.'s spinoff of its business process services division, the trader said. Conduent is eyeing a 9%-plus print, after coming with early guidance of 7¾% to 8%.

Hilton Grand Vacations Inc. is expected to price its $300 million offering of eight-year senior notes (Ba3/BB) on Friday. The notes are non-callable for five years. The 6½% early guidance has yet to be updated, the trader said.

And Genesys Telecommunications Laboratories Inc.'s $700 million offering of eight-year senior notes (Caa2/CCC) is also expected to clear before the weekend. There were no updates to the 9% to 9¼% early guidance, the trader said.

Big outflow anticipated

The daily cash flows of the dedicated high-yield bond funds were mixed on Wednesday, the trader said.

High-yield ETFs saw $276 million of inflows on the day.

However actively managed funds sustained $400 million of outflows on Wednesday.

Later on Thursday Lipper US Fund Flows is expected to make its weekly report on the cash flows of the dedicated junk funds, and it could be a big outflow, perhaps topping $2 billion, the trader warned.

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