China Evergrande paper improves; Sunac notes extend declines; PBF notes edge lower

By Cristal Cody

Tupelo, Miss., Oct. 21 – China Evergrande Group’s paper improved about 2¼ points to 2½ points in light trading on Thursday after reports that it had received an extension on a defaulted bond.

Sunac China Holdings Ltd.’s dollar notes remained softer a third day after Moody’s Investors Service changed the company’s outlook to stable from positive on Tuesday.

“Contagion has surfaced across parts of China’s homebuilding sector, triggered by the distress of Evergrande and aggravated by subsequent credit events involving other developers,” according to a Fitch Ratings report on Thursday.

“The resulting market volatility has weakened near-term refinancing prospects and exacerbated liquidity strains for developers with weaker credit profiles and those more reliant on capital-market debt financing, even as spillovers to investment-grade issuers and the broader corporate sector have so far been limited,” Fitch said.

The events are widening the polarization of homebuilder credit profiles and may prompt “substantial consolidation” in the sector, according to the report.

“Rising uncertainty among prospective homebuyers will hurt sales in the near term, particularly of properties that are not yet completed,” Fitch noted. “Financing strains could also weigh on the replenishment of project pipelines, as developers that do possess cash on hand may nevertheless opt to preserve short-term liquidity.”

On Wednesday, Fitch placed 29 Chinese property developers, including Kaisa Group Holdings Ltd., under criteria observation following the conversion of new ratings criteria.

Risk assets were mixed over the day with stocks mostly higher on strong earnings growth and improved economic data.

The iShares iBoxx High Yield Corporate Bond ETF declined 0.25% to end at $87.05.

Energy bonds were mixed in light secondary action as oil gave back some gains on Thursday.

West Texas intermediate crude oil benchmark futures for December deliveries settled off 92 cents at $82.50 a barrel.

Petroleum refiner PBF Holding Co. LLC’s notes are active but trading slightly weaker in the secondary market this week, sources said.

Dallas-based natural gas processor and pipeline operator EnLink Midstream Partners LP’s 6% perpetual preferreds (B1/B+/BB-) quieted with the issue last seen on Wednesday trading up over 2¼ points at 80¾ bid.

Evergrande higher

China Evergrande’s 8¾% senior notes due 2025 (C/C/C) gained about 2¼ points to the 22¼ bid area in light trading on Thursday, a source said.

The notes were mostly flat to about ¼ point weaker at the 20 bid range on Wednesday following Evergrande’s announcement that it had abandoned plans to sell a 50.1% stake in its Evergrande Property Services unit.

The Shenzhen, China-based real estate developer missed a bond payment in September and faces default on the issue this month.

Sunac’s dollar notes remained softer on a third day of declines after Moody’s changed the company’s outlook to stable from positive.

The Tianjin, China-based property developer’s 7% senior notes due 2025 (B1/BB-) fell about 1½ points to the 76 bid range after sliding 7¾ points in the prior session.

PBF notes active

PBF’s 6% senior notes due 2028 (Caa1/B/B+) were down less than ¼ point at the 71¼ bid area in strong trading by late afternoon Thursday, a source said.

The Parsippany, N.J.-based issuer’s notes traded down about ¼ point in the prior session but remain about 7½ points stronger month to date.

Distressed index moderates

Distressed index returns moderated on Wednesday.

The S&P U.S. High Yield Corporate Distressed Bond index’s one-day total returns were 0.02%, compared to 0.23% on Tuesday and minus 0.45% on Monday.

Month-to-date total returns improved to minus 0.72% from minus 0.74% on Tuesday and minus 0.96% on Monday.

Year-to-date total returns totaled 29.29% in the prior session, versus 29.27% on Tuesday and 28.97% at the week’s start.

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