FXI active in junkland; Bausch under pressure; Toledo sell-off continues

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 24 – While the domestic high-yield primary market remained dormant on Wednesday, there was some news coming out of the Nordic region.

A Norway-based subsidiary of NES Fircroft is seeking to place $300 million of senior secured sustainability-linked notes (B2/B).

Meanwhile, it was a sideways day in the secondary space with the cash bond market either side of unchanged in thin volume.

The market has been on a downward trend since last week when it began to reassess its expectations for the Federal Reserve’s rate hike schedule after a three-week rally fueled by what it interpreted to be a dovish pivot.

The Federal Reserve’s Jackson Hole Symposium, set to launch on Thursday, will be closely watched with chair Jerome Powell’s Friday speech a potential catalyst for the market, sources said.

With the primary market believed to be closed until post-Labor Day, topical news and end-of-month cleanup were the driving forces of trading activity in the space.

FXI Holdings, Inc.’s senior secured notes (B3/B-) were nominally improved in active trading.

Toledo Hospital’s (ProMedica Health Systems) senior secured notes (Baa3/BB) continued to see outsized losses with the former investment-grade company pegged as the next fallen angel.

Losses continue to mount for Bausch Health Cos. Inc.’s junk bonds (Caa2/CCC) as holders of the company’s unsecured debt organize in response to a recent internal asset transfer as the company explores strategic alternatives.

Nordic execution

A Norway-based subsidiary of NES Fircroft generated the week's first new issue news on Wednesday as it mandated ABG Sundal Collier and Pareto Securities to conduct meetings with fixed-income investors beginning next week.

The U.K.-based provider of staffing services to the energy sector seeks to place $300 million of NES Fircroft Bondco AS senior secured sustainability-linked notes in a Nordic execution.

Meantime the primary market in the United States remained inactive on Wednesday, with the distinct possibility that it won't reactivate until the conclusion of the Labor Day holiday weekend, sources say.

FXI Holdings active

FXI Holdings’ senior secured notes were nominally improved in active trading on Wednesday.

FXI’s 7 7/8% senior notes due 2024 rose ¼ point.

The notes were trading in the 83¾ to 84 context. The yield was about 17%.

There was $16 million in reported volume.

FXI’s 12¼% senior notes due 2026 rose ½ point to an 85-handle.

The notes were changing hands in the 85¼ to 85½ context during Wednesday’s session.

The notes were carrying a yield of 17¼%.

There was $13 million in reported volume.

The polyurethane foam producer is a privately-held company and sources queried were unsure of the manufacturer’s fundamentals.

“But those are hefty yields,” a source said.

Toledo sell-off continues

The sell-off in Toledo Hospital’s senior notes continued on Wednesday with the former investment-grade health care company slated for fallen angel status.

Toledo’s 5.325% senior secured notes due 2028 sank another 6½ points to close Wednesday at 63½, according to a market source.

The yield on the notes jumped to 14 3/8%.

There was $12 million in reported volume.

The notes have lost 12 points over the past two sessions.

Toledo’s 6.015% senior notes due 2048 sank 5 points to close Wednesday at 63 with the yield 10%.

There was $7 million in reported volume.

The former investment-grade company has been under pressure since earlier in the month when S&P Global Ratings downgraded the company to junk with more downgrades believed to be on the way, sources said.

While Toledo’s secured paper is still rated 5B, the 5.325% notes are trading wide to the CCC index.

Bausch under pressure

Losses continued to mount for Bausch senior notes as holders organize over Bausch’s attempt to spin off its eyecare products business as the company seeks alternatives.

Bausch’s 9% senior notes due 2025 were the most active in Bausch’s capital structure.

They also suffered the largest losses.

The 9% notes sank 7 points to close Wednesday at 63½ with the yield on the notes now north of 26%.

There was $10 million in reported volume.

Bausch’s 5% senior notes due 2029 fell 2½ points to 43¼. The 8½% senior notes due 2027 sank 2 points to 55½.

Bausch’s 6 1/8% senior secured notes due 2027 (B2/B), which priced at par in January, fell another 2 points to 77.

Bausch has been under pressure since it lost its patent battle over its irritable bowel treatment Xifaxan earlier in the month, which was responsible for about 50% of its earnings, the Wall Street Journal reported.

Pressure on the company has mounted in recent days after Bausch simultaneously announced an internal asset transfer of Bausch + Lomb stock and that it has hired advisers to seek strategic alternatives.

Bausch’s unsecured and secured creditors are organizing to challenge Bausch’s spin-off of Bausch + Lomb, which they say transfers value out of their reach.

$619 million Tuesday outflows

The dedicated high-yield bond funds sustained $619 million of net outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

The negative flows were concentrated in the actively managed cohort: actively managed high-yield funds saw $535 million of outflows on the day.

High-yield ETFs sustained $84 million of outflows on Tuesday, the source said.

The combined funds are tracking a whopping $3.59 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index fell 8 points to close Wednesday at 55.86 with the yield now 6.85%.

The index was down 13 points on Tuesday after plummeting 81 points on Monday.

The ICE BofAML US High Yield index inched up 3 bps with the year-to-date return now negative 9.552%.

The index was down 20 bps on Tuesday after sinking 74.5 bps on Monday.

The CDX High Yield 30 index gained 34 bps to close Wednesday at 100.69.

The index was flat on Tuesday after sinking 84 bps on Monday.

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