Atlantica Yield withdraws; California Resources in focus as crude oil plummets; L Brands drops

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 20 – The sell-off in equities, blowout of credit spreads, and plummeting crude oil futures continued to take its toll on domestic primary market activity.

Atlantica Yield plc, the sole deal on the forward calendar, withdrew its offering on Tuesday, citing market conditions.

The secondary space remained sloppy with the market in general down about ¼ point, a market source said.

California Resources Corp.’s 8% senior secured second-lien notes due December 2022 were the most actively traded issue of Tuesday’s session with the notes shaving off 3 points as crude oil futures plummeted.

Several recent issues from the energy sector reached their lowest point since pricing on Tuesday, including new paper from Chesapeake Energy Corp. and Transocean Inc.

However, one recent issue from the energy sector continued to hold above issue price.

While slightly weaker on Tuesday, Vantage Drilling International’s 9¼% senior secured first-lien notes (Caa1/B) were still seen at a premium to par.

The issue stands out as one of the few deals that priced in November to perform well in the secondary space.

RegionalCare Hospital Partners Holdings, Inc./LifePoint Health, Inc.’s recently priced 9¾% senior notes due December 2026 (Caa1/CCC+) continued their downward momentum in active trading on Tuesday with the notes shaving off another ½ point.

Outside of recent deals, L Brands, Inc.’s 5¼% senior notes due 2028 dropped 2¼ points in active trading on Tuesday after announcing it would slash its dividend.

Atlantica Yield withdraws

The sole nugget of primary market news on Tuesday was negative.

Atlantica Yield announced in a Tuesday press release that it will not proceed with its $300 million offering of senior notes.

The decision was a response to broader market conditions, the company stated (see related story in this issue).

The withdrawal of Atlantica Yield cleared the active forward calendar.

Following Tuesday’s close, the Nov. 19 week had just one foreshortened session ahead of the extended Thanksgiving holiday weekend in the United States, which gets underway following an early close on Wednesday.

Given the broad-based selloff in asset prices underway since the beginning of the week, no new issue activity is anticipated until the conclusion of the holiday weekend, and then only if market conditions stabilizes, market sources in Europe and the United States say.

California Resources drops

California Resources 8% senior notes due 2022 were the most actively traded issue in the secondary space as crude oil futures again plummeted on Tuesday.

The notes dropped 3 points in the high-volume activity.

They were quoted 80¾ bid, 81½ offered in the early afternoon, according to a market source. The notes stood poised to close the day at 80, another source said.

The notes have dropped 10 points in November.

The downward spiral of the notes followed the trajectory of WTI crude oil futures, which saw another dramatic fall on Tuesday.

WTI crude oil futures settled at $53.43 on Tuesday, a decline of $3.77 or 6.59%.

The drop in crude oil prices on Tuesday was attributed to comments U.S. President Donald Trump made in support of Saudi Crown Prince Mohammed bin Salman.

WTI crude oil futures also fell more than 7% on Nov. 13 after Trump encouraged OPEC to gradually increase output.

Analysts projected crude oil futures would surpass $100 in early October. However, futures fell into bear territory last week amid concerns about oversupply.

New lows

Several recent issues from the energy sector marked their lowest point since hitting the secondary space on Tuesday.

Chesapeake Energy priced a $1.25 billion two-tranche offering of 7% senior notes due 2024 and 7½% senior notes due 2026 at par on September 25.

Both tranches were seen at 93¼ bid, 94¼ offered on Tuesday, according to a market source.

The 7% notes were quoted at 94 7/8 bid, 95 7/8 offered and the 7½% notes were quoted at 95 bid, 96 offered on Monday.

Transocean priced a $750 million issue of 7¼% notes due 2025 on Oct. 22.

The notes were quoted at 90¾ bid, 91¾ offered on Tuesday. They were quoted at 92½ bid, 94 offered on Monday.

While Transocean’s 7¼% senior notes were slow to trade on Tuesday, the company’s 9% senior notes due 2023 were active in the secondary space.

The 9% notes shave off about 3/8 point to trade down to par ¾ on Tuesday, a market source said.

More than $20.5 million of the bonds were on the tape by the late afternoon.

Vantage Drilling holds

While the energy sector was under pressure, Vantage Drilling’s recently priced 9¼% senior secured first-lien notes due November 2023 continued to hold in the secondary space.

While the notes were weaker at par ¼ bid on Tuesday, they were not seen changing hands during the session, sources said.

The notes were quoted at par ½ bid, par ¾ offered on Monday.

The issue is one of the few recent deals to trade at a premium to their issue price in the secondary space.

While several potential issuers withdrew their offerings due to market conditions, Vantage Drilling priced an upsized $350 million issue of the 9¼% notes at par on Nov. 15.

RegionalCare weaker again

RegionalCare’s 9¾% senior notes due 2026 continued to weaken in active trading in the secondary space.

The notes dropped ½ point to close Tuesday at 97 7/8, a market source said. More than $22 million of the bonds were on the tape by the late afternoon.

The notes closed Monday at 98 3/8.

The 9¾% notes have steadily traded down since pricing.

RegionalCare priced a downsized $1.425 billion issue of the 9¾% notes at par on Nov. 14.

L Brands drops

L Brands 5¼% senior notes due 2028 were sharply lower in active trading on Tuesday after the company slashed its dividend.

The notes were down 2 3/8 point to trade at 86 1/8, a market source said. More than $21 million of the bonds were on the tape by the late afternoon.

L Brands reported an earnings beat for the third-quarter and raised its forward guidance. However, it also cut its annual dividend in half.

L Brands reported non-GAAP earnings per share of 16 cents versus analyst expectations for earnings per share of 15 cents.

Revenue of $2.77 billion in the third quarter was inline with analyst expectations.

However, L Brands slashed its annual dividend to $1.20 from $2.40, sparking a sell-off in the company’s equity.

Mixed Monday flows

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

High-yield ETFs saw $466 million of inflows on the day.

However, actively managed high-yield funds sustained a hefty $655 million of outflows on Monday, the source said.

Also of note, outflows from the dedicated leveraged loan funds have taken on some heft, the trader remarked.

The loan funds sustained $355 million of outflows on Monday. Of that amount, $213 million flowed from the bank loan ETFs.

At Monday's close the combined high-yield funds were tracking $1.3 billion of outflows in the week beginning with last Thursday's open.

Over the same period the bank loan funds, including ETFs, were tracking $705 million of outflows, the trader added.

Indexes see red

Indexes marked their seventh consecutive trading session on Tuesday, standing poised to close the truncated holiday week with steep losses.

The KDP High Yield Daily index dropped another 12 basis points on Tuesday, closing the day at 68.20, a decrease of 6.64%.

The index was also down 12 bps on Monday after dropping 78 bps on the week last week.

The ICE BofAML US High Yield index dropped 31.5 bps with the year-to-date return now negative 0.634.

The index dropped 12.3 bps on Monday after a 130.6 bps drop on the week last week.

Returns entered into negative territory for the first time since June last Thursday.

The CDX High Yield 30 index dropped 28 bps on Tuesday, closing the day at 103.42. The index was down 47 bps on Monday after sinking 137 bps on the week last week.

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