L Brands trading after earnings report; Sinclair gains; $1.5 billion fund outflows

By Paul A. Harris and James McCandless

San Antonio, Aug. 22 – High-yield secondary activity, with a quiet primary, was focused on retail, oil and Sinclair’s recent paper in Thursday’s activity.

L Brands, Inc.’s notes diverged in direction after the company released its second-quarter earnings report.

While oil futures declined, Whiting Petroleum Corp.’s and California Resources Corp.’s issues varied as Valaris plc’s paper improved.

In the pharma space, Endo International plc’s notes also saw differing movements.

Meanwhile, Sinclair Broadcast Group Inc.’s issues sustained gains.

The dedicated high-yield bond funds sustained $1.5 billion of outflows in the week to Wednesday’s close, according to Lipper US Fund Flows.

The primary remained quiet, as the market resets for post-Labor Day activity.

Quality rather than safety

New issue activity remained dormant on Thursday, as the market winds its way through the Dog Days of August, traditionally a time of little or no high-yield primary market activity.

Thus far there are few hints as to what a September new issue calendar might look like.

However, one trend seen throughout the past year will likely carry into the post-Labor Day period, according to an investor: The buyside is looking for quality.

Investors aren't flocking to safety, the investor insisted.

They're flocking to quality.

That's why a lot of the high-profile deals of spring and summer played to strong demand, sometimes seeing pricing tighten 50 or more basis points during the days – or sometimes just hours – that the deals were in the market, the source remarked.

A contender for “Banner Deal of the Summer” was the Trivium Packaging Finance BV four-part deal, totaling $1.75 billion and €980 million, which priced on July 19, the investor said.

Both dollar-denominated tranches – one secured and one unsecured – were upsized.

The Trivium dollar-denominated 5½% senior secured notes due August 2026 priced 25 bps lower than the tight end of the 5¾% to 6% price talk.

Those notes have traded as high as 108 in the secondary, a market source said.

Demand for the Trivium bonds was intense, sources said.

However, it's a “bifurcated market,” the investor asserted.

While demand for the quality deals is vigorous, demand for off-the-run names with credit issues or challenging stories tends to be tepid or worse.

In some case the market may not be open to such issuers at any price, the investor said.

Such was the case with Sirius Minerals plc which attempted to place $500 million of eight-year senior secured notes in a project financing deal that came at the end of July.

Sirius entered the market with initial talk of 10% to 12%.

After completing its roadshow the U.K.-based fertilizer company showed itself to be a price-taker, hiking talk to 13½% before officially postponing the trade on Aug. 6, citing market conditions.

L Brands diverges

In the secondary market, retail name L Brands’ notes diverged in direction on Thursday, traders said.

The 6¾% senior notes due 2036 fell ½ point to close at 86½ bid. The 7½% notes due 2029 edged up ¼ point to close at 99 bid.

After the close on Wednesday, the Columbus, Ohio-based retail name released its second-quarter earnings report.

The company reported a 24 cents per share profit, higher than the 19 cents per share profit estimated by analysts.

Net sales were posted at $2.9 billion, lower than estimates.

Weighing on the name was its Victoria’s Secret segment’s 9% decrease in comparable sales.

The name also lowered its guidance for third-quarter earnings.

“There were a few other retailers posting earnings that were stronger,” a trader said. “Big box stores are performing, but it’s the department store names like L Brands that are continuing to underwhelm.”

Oil names vary

Oil futures declined, though distressed energy tranches were noncohesive, market sources said.

Futures saw tepid declines as the market awaited a speech from Federal Reserve chair Jerome Powell.

West Texas Intermediate crude oil futures for October delivery dipped 33 cents to settle at $55.35 per barrel.

North Sea Brent crude oil futures for October delivery ended at $59.92 per barrel after a 38-cent loss.

Denver-based independent oil and gas producer Whiting’s issues varied.

The 6¼% senior notes due 2023 shaved off ½ point to close at 81 bid. The 6 5/8% notes due 2026 improved by ½ point to close at 77¾ bid.

Los Angeles-based producer California Resources’ notes were similar.

The 6% senior notes due 2024 held level at 43 bid. The 8% notes due 2022 rose 2½ points to close at 60¾ bid.

London-based contract driller Valaris’ notes improved.

The 5.2% senior notes due 2025 shot up 3 points to close at 63½ bid. The 7¾% notes due 2026 gained 2½ points to close at 65 bid.

Endo differs

Elsewhere, pharma name Endo’s issues saw differing movements, traders said.

The 6% senior notes due 2023 improved by ½ point to close at 68 bid. The Par Pharmaceutical Co.s, Inc. 7½% senior secured notes due 2027 declined 1 point to close at 94½ bid.

The Dublin-based drug producer’s structure has seen positive attention this week after announcing on Tuesday that it had reached a $10 million settlement with two Ohio counties.

The suits had been brought over the company’s alleged involvement in the opioid epidemic.

As part of the settlement, the company will not admit any wrongdoing.

Sinclair gains

Broadcaster Sinclair’s paper saw sustained gains throughout the session, market sources said.

The 5 3/8% senior notes due 2026 improved by ¼ point to close at 104½ bid. The 6 5/8% senior notes due 2027 added ½ point to close at 102¾ bid.

Both tranches priced on July 18.

Junk outflows: $1.5 billion

The dedicated high-yield bond funds sustained $1.5 billion of outflows in the week to Wednesday's close, according to information reported on the internet by Lipper US Fund Flows.

It follows the previous week's $346 million inflow.

There have been 23 inflows and 10 outflows in the 33 weeks of 2019, according to a Prospect News analysis of the data.

The daily cash flows of the dedicated junk funds were mixed on Wednesday, the final day of the most recent reporting period, and the most recent single session for which data was available at press time, according to an investor.

High-yield ETFs saw $544 million of inflows on the day.

In line with that hefty inflow traders worked through a large amount of offers-wanted-in-competition (OWICs), primarily from the ETFs, during the Wednesday session, a New York-based bond trader said.

Indexes rise

Three high-yield indexes all saw improvements on Thursday.

The KDP High Yield Daily index tacked on 17 basis points, closing at 71.48 with the yield now at 5.52%.

The index added 11 bps on Wednesday, rose 8 bps on Tuesday and picked up 18 bps on Monday.

The ICE BofAML US High Yield index gained 13.7 bps on Thursday with the year-to-date return now at 10.679%.

The index garnered 31.3 bps on Wednesday, improved by 11.4 bps on Tuesday and added 26.4 bps on Monday.

The CDX High Yield 30 index gained 34.44 bps, reaching 106.5295 at the close.

The index climbed up 34.55 bps on Wednesday, 35.47 bps on Tuesday and added 35 bps on Monday.

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