Volatility down, tone upbeat ahead of year-end holidays; distressed debt names increase

By Cristal Cody

Tupelo, Miss., Dec. 23 – Fewer market participants hung around on Friday in the last session before the Christmas holiday with desks thinly staffed and volatility lower.

Market tone was stronger over the session. The S&P 500 index rose 0.59%.

The iShares iBoxx High Yield Corporate Bond ETF added 19 cents, or 0.26%, to $74.39.

The Fear Factor index declined.

The CBOE Volatility index fell 5% to $20.83.

February oil prices added more than $2 over the day.

West Texas Intermediate crude oil benchmark futures for February deliveries settled $2.07 higher at $79.56 a barrel.

Distressed market grows

The distressed market was headed toward the year’s end with a growing list of names from fallen angels in 2022 and others that graced watchlists in December, according to market sources.

Taxable bonds from fallen angel Toledo Hospital were trading on average around 64 bid in December, according to a BofA Securities Inc. note.

Toledo Hospital’s 5.325% senior secured notes due 2028 (Ba2/BB) traded at the 71¾ bid area back in September after sinking more than 30 points in August, a source reported. The bonds ended July with a 97 handle.

S&P Global Ratings dropped the Ohio-based health care company, doing business as ProMedica Health System, Inc., to junk in August.

Moody’s Investors Service downgraded the issuer to junk in September.

Another newcomer to watchlists is Office Properties Income Trust (Ba1/BBB-) after being downgraded to junk by Moody’s in November. The trust’s bonds were trading at a 79 bid average this month, BofA said.

CI Financial Corp. (Baa2/BBB-) also was on fallen angel watchlists at the year’s end with $1.86 billion of debt trading on average at 70 bid, BofA said.

Several health care names graced watchlists in December, including Lannett Co. Inc., with $350 million of paper trading at the 27 bid average area, Envision Healthcare Corp. with $939 million of notes at the 29 bid area, Bausch Health Cos. Inc.’s $12.94 billion of bonds in the 64 bid area and Emergent BioSolutions Inc.’s $450 million of bonds at the 45 bid area, according to the BofA note.

Emergent BioSolutions’ 3 7/8% guaranteed senior notes due 2028 (Caa1/B) were reported trading lower in the final week before Christmas on nearly $12 million of volume at 39 bid.

The Gaithersburg, Md.-based life sciences company sold $450 million of the notes on Aug. 4, 2020 at par.

Distressed index lower

The S&P U.S. High Yield Corporate Distressed Bond index remained mostly negative ahead of Christmas.

One-day returns were soft on Thursday at minus 0.17%, compared to 0.11% on Wednesday, minus 0.49% on Tuesday and minus 0.29% on Monday.

Month-to-date total returns declined to 0.12% on Thursday from 0.29% on Wednesday, 0.18% on Tuesday and 0.67% at the week’s start.

Year-to-date total returns were totaling minus 25.35% on Thursday versus minus 25.23% on Wednesday, minus 25.31% on Tuesday and minus 24.94% on Monday.

In the same session a year ago, the S&P U.S. High Yield Corporate Distressed Bond index’s one-day total return was 0.37%, month-to-date returns were 0.34% and year-to-date total returns were 22.19%.

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