Junk trading flat; Tenneco strengthens; Valaris active; Level 3 pressured on downgrade

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 22 –It was a quiet and flat day in the junk bond secondary space on Tuesday with little to move the market as it enters the doldrums of summer, a source said.

While there may be some volatility surrounding Federal Reserve chair Jerome Powell’s Friday speech from Jackson Hole, market players anticipate a quiet end to the summer.

In traded issues, Tenneco Inc.’s recently priced 8% senior secured notes due 2028 (B1/B) continued to add in heavy volume after dropping about 4 points below their deeply discounted issue price the previous week.

Valaris Ltd.’s 8 3/8% senior secured second-lien notes due 2030 (B2/BB/BB-) were active although with little change in price.

Level 3 Financing, Inc.’s senior notes were under pressure on Tuesday with the notes falling 1 to 3 points following a credit downgrade.

Tenneco adds

Tenneco’s recently priced 8% senior secured notes due 2028 continued to fight back on Tuesday after dropping about 4 points their first week in the aftermarket.

The 8% notes were up another ¼ point to trade in the 82¾ to 83 context, a source said.

The $1.9 billion issue continued to dominate the tape with $22 million in reported volume heading into the market close.

Tuesday marked the third consecutive session of gains for Tenneco which dived 4 points to an 81-handle within days of pricing at 85.

Valaris active

Valaris’ 8 3/8% senior secured second-lien notes due 2030 were active on Tuesday although with little movement in price.

The 8 3/8% notes continued to trade in the par ¾ to 101 context, a source said.

There was $19 million in reported volume.

The 8 3/8% notes have largely traded in the par ¾ to 101¼ context since the offshore drilling company priced a $400 million tap of the notes at par ¾ on Aug. 7.

Prior to the add-on, the notes were trading on a 102-handle.

Level 3 under pressure

Level 3’s senior notes were under pressure on Tuesday following a credit downgrade with the notes falling 1 to 3 points after a strong rally in July.

The 4 5/8% senior notes due 2027 (B3/CCC+) were the most active in the debt stack.

The notes fell 1½ points to close the day at 73¾ with the yield rising to 13 1/8%, a source said.

There was $14 million in reported volume.

The 4¼% senior notes due 2028 fell 2½ points to close the day at 64 with the yield about 14 7/8%.

The 3 7/8% senior secured notes due 2029 (B1/B) fell 1 point to close the day at 86½ with the yield about 6½%.

The notes were under pressure after Moody’s Investors Service downgraded parent company Lumen Technologies Inc.’s corporate family credit ratings and subsidiary Level 3’s secured rating to B1 from Ba2 and unsecured rating to B3 from B1.

The downgrade was a result of increased financial risks, weak operating performance and a substantial amount of debt maturing in 2025 and 2027, according to a press release (see related article in this issue).

Moody’s also cited that the “substantial percentage of its lenders,” that have retained financial and legal advisers as a concern.

Level 3’s senior notes were on fire in July as lenders tapped law firms to probe the use of proceeds from an overseas asset sale.

Level 3’s notes jumped 5 to 7 points in the July rally and have largely maintained those levels since, sources said.

Quiet

The new issue market’s Monday dormancy carried over into Tuesday.

No new deals were announced.

The active dollar-denominated forward calendar remained empty.

New issue activity is expected to be sparse ahead of the Labor Day holiday weekend which gets underway following the Sept. 1 close.

Turning to market technicals, high-yield ETFs sustained $1.26 billion of daily cash outflows on Monday, according to a bond trader who added that it was the fourth-largest outflow from the ETFs so far this year, as well as their second $1 billion-plus outflow in the past three sessions.

Indexes

The KDP High Yield Daily index added 8 basis points to close Tuesday at 49.69 with the yield 7.79%.

The index was down 12 bps on Monday.

The ICE BofAML US High Yield index gained 12 bps with the year-to-date return now 5.774%.

The index shaved off 6.4 bps on Monday.

The CDX High Yield 30 index gained 4 bps to close Tuesday at 101.9.

The index gained 16 bps on Monday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.