Hecla Mining trades up; Kraft Heinz downgraded to junk; EQT downgraded again; Uniti gains

By Abigail W. Adams and Paul A. Harris

Portland, Me., Feb. 14 – After a front-loaded week that saw more than $9 billion of issuance clear the domestic high-yield primary market, new deal activity ceased on Friday.

The secondary space was also quiet with the market again moving sidewise in relatively light volume in the run-up to the holiday weekend.

Hecla Mining Co.’s newly priced 7¼% senor notes due 2028 (Caa1/B) were putting in a strong performance in the secondary space with the notes well above their issue price.

Kraft Heinz Foods Co.’s senior notes were trading off in high-volume activity after S&P Global Ratings and Fitch Ratings downgraded the grocery manufacturer to junk.

Kraft is the latest company to achieve fallen angel status.

EQT Corp. is now a fully junk-rated company after its most recent downgrade from Fitch.

The energy company’s recently priced 7% senior notes due 2030 and 6 1/8% notes due 2025 now trade in the mid-80s.

After a volatile start, Uniti Group Inc.’s 7 7/8% senior notes due 2025 (Caa1/CCC/B) continued their upward momentum on Friday, solidifying their position as one of the best performing new deals of the year.

Hecla trades up

Hecla Mining’s 7¼% senior notes due 2028 were putting in a strong performance in the secondary space.

After a strong break on Thursday, the notes continued to trade around 101½ on Friday, according to a market source.

The notes were changing hands in the 101½ to 101 5/8 context soon after breaking for trade on Thursday.

Hecla Mining’s notes mirrored a general trend in the high-yield universe with CCC and B credits continuing to outperform their higher rated counterparts.

CCC credits saw returns that were 65 basis points higher than BB credits in the past week, according to a BofA Global Research note.

CCC credit returns have been 100 bps greater than BBs year-to-date, according to the note.

Hecla Mining priced a $475 million issue of the 7¼% notes at par on Thursday.

Pricing came tighter than the 7½% to 7¾% early guidance.

Kraft Heinz eyed

Kraft Heinz’s senior notes were trading off in high-volume activity following rating downgrades that put the notes in junk territory.

The 4 3/8% senior notes due 2046 traded down to 90 on Friday, according to a market source.

They were in the 101½ to 102 range heading into Thursday’s session.

The 4 7/8% senior notes due 2049 traded down to 97½ Friday afternoon.

They were trading as high as 109 early Thursday, according to Trace data.

The sell-off in the notes began following disappointing fourth-quarter earnings.

However, the sell-off was compounded after S&P and Fitch reduced the grocery manufacturer’s credit rating to junk.

Fitch downgraded Kraft Heinz to BB+ from BBB due to Kraft’s elevated leverage, EBITDA challenges and limited debt reduction potential, Prospect News reported (see related article in this issue).

S&P downgraded the company to BB+ from BBB-, lowered its short-term rating to B and lowered the rating on unsecured debt to BB+.

The rating agency cited significant mismanagement and decline in enterprise value characterized by a $1.5 billion EBITDA decline as cause for the downgrade (see related article in this issue).

Moody’s Investors Service reaffirmed its investment grade rating for the company and its subsidiaries, including its Baa3 ratings for the company’s unsecured debt.

However, the ratings agency revised its outlook for the company to negative due to its declining performance and high leverage (see related article in this issue).

Fallen angel

Kraft Heinz is the latest company to achieve fallen angel status.

EQT Corp. is now a fully junk rated company following Fitch Ratings’ downgrade to BB from BBB-.

Fitch downgraded the company due to the impact depressed natural gas prices are expected to have on the company, including its asset sales and deleveraging plan, Prospect News reported (see related article in this issue).

S&P downgraded EQT to BB+ from BBB- on Feb. 4.

The downgrades come just one month after EQT priced a $1.75 billion two-tranche offering of senior notes.

The 7% senior notes due 2030 were changing hands around 83 1/8 on Friday. The 6 1/8% senior notes due 2025 were trading around 87 1/8.

The notes were split-rated when they priced on Jan. 15.

“These priced at par a month ago,” a market source recently said. “It’s not pretty.”

Uniti gains

After a volatile start in the secondary space, Uniti Group’s recently priced 7 7/8% senior notes due 2025 continued their upward momentum on Friday.

The notes traded up 1 point to close the day at 106, their highest level since pricing.

The 7 7/8% notes now stand as one of the best performing deals of 2020, according to a market source.

The notes were volatile after hitting the secondary space.

While the notes initially saw a strong break and traded up more than 1 point, they tumbled down to just north of par last Friday.

However, the notes staged a comeback and gained strength in high-volume activity throughout the week, sources said.

Uniti’s junk bonds were in focus as news surfaced about its ongoing negotiations with former parent company Windstream Holdings Inc.

The two companies have been in mediation over a lease arrangement entered into when Windstream spun off its fiber optic cable assets to Uniti.

While no agreement has been reached and the negotiations may result in the two entities going to court, Windstream released a statement on Thursday saying negotiations were ongoing and proposals were still being exchanged.

$121 million Thursday inflows

The dedicated high-yield bond funds saw $121 million of net inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $429 million of outflows on the day.

However, the actively managed high-yield accounts cleared that amount and more, posting $550 million of daily inflows on Thursday, the source said.

News of Thursday's daily flows follows a Thursday afternoon report that the combined funds saw $2.8 billion of net inflows in the week to Wednesday's close, according to Lipper US Fund Flows.

That's the biggest weekly net inflow to the junk funds since mid-September, the market source noted.

Indexes mixed

Indexes closed out Friday mixed although all saw cumulative gains on the week.

The KDP High Yield Daily index shaved off 4 points to close Friday at 71.57 with the yield now 4.81%.

The index gained 4 bps on Thursday, was flat on Wednesday, rose 3 bps on Tuesday and shaved off 1 bp on Monday.

The index saw a cumulative gain of 2 bps on the week.

The ICE BofAML US High Yield index gained 1.4 bps with the year-to-date return now 1.131%.

The index was up 5.2 bps on Thursday, 11.4 bps on Wednesday when it crossed the 1% threshold, gained 29.5 bps on Tuesday and was up 2.3 bps on Monday.

The index saw a cumulative gain of 49.8 bps on the week.

The CDX High Yield 30 index shaved off 14 bps to close Friday at 109.28.

The index dropped 6 bps on Thursday, gained 16 bps on Wednesday, 13 bps on Tuesday and 14 bps on Monday.

The index saw a cumulative gain of 23 bps on the week.

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