China property bonds mostly decline; Talen notes gain ground; CWT up; Telesat off

By Cristal Cody

Tupelo, Miss., Oct. 19 – China’s offshore real estate bonds mostly declined on Tuesday on the heels of another missed payment, more downgrades and as the Peoples Republic of China prepared to tap the U.S. high-grade primary market.

S&P Global Ratings on Tuesday dropped Sinic Holdings (Group) Co. Ltd. to SD from CC after the company failed to repay the interest and principal on its $250 million of offshore senior notes that were due Monday.

“Markets have now largely priced in the financial problems with Chinese developers, and there is little apparent market impact from today’s Sinic default,” Confluence Investment Management analysts said in a note on Tuesday. “However, markets could still react negatively if the wave of defaults worsens or there is any indication of contagion affecting other parts of the economy.”

Moody’s Investors Service on Tuesday downgraded Shenzhen, China-based real estate developer Kaisa Group Holdings Ltd. and its senior bonds amid an uncertainty over the company’s ability to repay its offshore debt due in the next 18 months.

Kaisa’s 11.95% senior notes due 2022 (B3/B) plunged about 14 points on the day.

Sunac China Holdings Ltd.’s dollar notes slid about 2½ points to 7 points after Moody’s changed the company’s outlook to stable from positive.

China Evergrande Group’s paper traded in the low 20s as the Shenzhen, China-based real estate developer nears an official default this weekend following a missed bond payment in September, sources said.

Some offshore real estate bonds were stronger during the session.

Yuzhou Group Holdings Co. Ltd.’s 8½% senior notes due 2024 (B2//B+) climbed 4½ points.

Market tone was stronger on Tuesday with stocks up as volatility waned on continued strong earnings reports.

The iShares iBoxx High Yield Corporate Bond ETF rose 6 cents to $87.24 after declining in the prior two sessions.

Oil prices also were higher.

North Sea Brent crude oil futures for December deliveries settled up 75 cents to $85.08 a barrel.

Talen Energy Supply LLC’s bonds continued to gain ground on Tuesday.

Paper from corporate travel management company CWT, formerly known as Carlson Travel Inc., also improved.

Elsewhere, bonds from Telesat Canada LLC drifted lower by the close.

Kaisa, Sunac drop

Kaisa’s 11.95% senior notes due 2022 (B3/B) plunged to under the 44 bid area from 59 bid on Monday following Moody’s downgrade, according to a market source.

The notes ended Friday down about 10 points on the week.

Kaia’s 11½% senior notes due 2023 (B3/B) headed out weaker at 43 bid. The notes were last quoted trading Friday at 49 1/8 bid, nearly 20 points lower than the prior week.

Sunac’s dollar notes declined about 2½ points to 7 points following Moody’s downgrade on Tuesday.

The Tianjin, China-based property developer’s 6.65% senior notes due 2024 (B1/BB-) dropped 7 points to 77 bid by the close on $5 million of secondary supply.

China Evergrande’s 8¾% senior notes due 2025 (C/C/C) slipped about ¼ point to 20 bid during the session.

Meanwhile, Shanghai-based real estate development company Yuzhou Group’s 8½% notes due 2024 (B2) climbed 4½ points to head out at 65½ bid.

The issue attracted $3 million of secondary volume.

Talen improves

In the energy space, Talen’s 6½% senior notes due 2025 (Caa1/CCC/B-) improved 2 3/8 points to 57¾ bid on over $7.7 million of trading supply on Tuesday, a market source said.

The Woodlands, Tex., and Allentown, Pa.-based power company’s bonds picked up 1 3/8 points on Monday.

CWT notes up

CWT’s 6¾% senior secured notes due 2025 (/D/C) also jumped 1¾ points to 48 bid by the end of the session, a source said.

Trading volume totaled $1 million.

Fitch Ratings downgraded the Minneapolis-based corporate travel management company in June after the company missed an interest payment on its second-lien and third-lien senior secured notes.

CWT announced in September it has entered into a restructuring support agreement that will eliminate almost $900 million of debt.

Telesat under pressure

Elsewhere in the distressed secondary market, bonds from Telesat have been under pressure since late summer and declined further on Tuesday, a source said.

Telesat Canada’s 6½% senior notes due 2027 (Caa1/B) fell 1½ points to head out near the 82 bid area on more than $4.6 million of volume.

The Ottawa-based satellite communications company’s issue traded at the 97 bid range in July.

Defaults low

In other market news, S&P said in a press release on Tuesday that only 16% of CCC-rated issuers have defaulted over the last 12 months, compared with a historical average of 35%.

The pandemic’s impact caused downgrades of companies with stronger businesses compared with those downgraded before the pandemic, which offers greater recovery prospects as restrictions are lifted, S&P noted.

“The low interest rate environment and appetite for yield has fueled speculative-grade issuance, which reached $508 billion in August as issuers at even the lowest rating categories have been able to borrow cheaply,” S&P said.

Distressed index weakens

Distressed index returns started the week lower.

The S&P U.S. High Yield Corporate Distressed Bond index’s one-day total returns declined on Monday to minus 0.45% from minus 0.44% on Friday.

Month-to-date total returns were minus 0.96% on Monday, up from minus 0.52% on Friday.

Year-to-date total returns softened to 28.97% compared to 29.55% ahead of the weekend.

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