Tenneco returns gains; Spirit AeroSystems lower on defect; junk funds lose $1.17 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 24 – The junk bond market was soft on Thursday with the cash bond market falling 1/8 to ¼ and the CDX index down 5/8 point.

The market sustained large outflows over the past week and market players may be de-risking ahead of Federal Reserve chair Jerome Powell’s Friday speech from Jackson Hole, sources said.

Thinning liquidity also contributed to large price swings in certain names.

Tenneco Inc.’s 8% senior secured notes due 2028 (B1/B) remained a driving force of activity in the space with the notes giving back much of the gains made over the past week.

Spirit AeroSystems Inc.’s senior notes were under pressure following new reports of quality control issues that may impact deliveries of Boeing’s 737 Max jets.

AMC Entertainment Holdings, Inc.’s senior notes tumbled in heavy volume on Thursday as the company undergoes a reverse stock split on the eve of the conversion of its preferred equity units, or APEs.

Meanwhile, high-yield mutual and exchange traded funds continued with hefty outflows of $1.17 billion leaving the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flow report.

Tenneco returns gains

Tenneco’s 8% senior secured notes due 2028 sank in heavy volume on Thursday with the notes giving back much of the gains made over the four previous trading sessions.

The 8% notes tumbled ¾ to 1 point to break below an 82-handle after only recently breaking above an 82-handle.

On $14 million in reported volume, the 8% notes sank to the 81¾ to 82¼ context heading into the market close.

The notes have been on an uptrend over the past four sessions and notched nominal daily gains after bottoming out on an 81-handle the previous week.

Tenneco’s 8% notes have struggled since the $1.9 billion issue priced at 85 on Aug. 15 with the notes’ 11.933% yield not high enough, sources have said.

Spirit down

Spirit AeroSystems’ senior notes were pressured after a new quality control issue with a part supplied by Spirit again threatened to disrupt deliveries of Boeing’s 737 Max jets.

Spirit’s 9 3/8% senior secured first-lien notes due 2029 (Ba2/BB-) and 4.6% senior notes due 2028 (Caa1/CCC+) fell 1 to 3 points on the news.

However, Spirit’s 7½% senior secured second-lien notes due 2025 (B3/B-) held up relatively well with the notes only off ½ point, largely because of their short duration, a source said.

The 9 3/8% notes fell 1¼ points to close the day at 102 7/8 with the yield about 8½%, according to a market source.

The 4.6% senior notes dropped 2½ points to close the day at 79¼ with the yield 10 1/8%.

However, the 7½% senior notes were holding up relatively well with the notes off ¼ to ½ point to trade in the 97 5/8 to 98 1/8 context, a source said.

The notes were also the most liquid in the debt stack with $14 million in reported volume during Thursday’s session.

Spirit’s senior notes were under pressure as headlines broke about a new issue with parts supplied by Spirit that threatened to disrupt Boeing’s delivery schedule for its 737 model airliner.

This is the second time in recent history that problems with parts supplied by Spirit have caused delivery delays for Boeing.

Spirit’s capital structure also took a hit in April when the company revealed it was the Boeing supplier responsible for the non-conforming parts that caused Boeing to halt deliveries of its 737 Max jets.

AMC goes APE

AMC’s senior notes were taking a beating on Thursday as the company prepares to convert its preferred equity units after a protracted legal struggle.

The 10% senior secured second-lien notes due 2026 (Caa3/CCC-) sank 4 points to close the day wrapped around 70 with the yield rising to 25 5/8%, according to a market source.

There was $20 million in reported volume.

AMC’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) fell 1 point to close the day at 68 5/8 with the yield about 16 3/8%.

There was $15 million in reported volume.

Selling in the name intensified as the company carried out a 10-to-1 reverse stock split on Thursday on the eve of the conversion of its preferred equity units, which have traded under the ticker “APE.”

Primary

The Dog Days of August continued to becalm the dollar-denominated new issue market on Thursday, and will likely carry on thus right up to the start of the extended Labor Day holiday weekend, the traditional summer-fall terminus in the bond market, a syndicate banker said.

Even on-the-run, opportunistic issuers accustomed to raising cash in drive-by executions are unlikely to appear, notwithstanding the fact that they might enjoy the market’s full attention during the late summer lull, the banker said.

Prerequisites for such a hypothetical trade would include a strong, steady capital markets backdrop, some stability in risk-free rates and the ability to scare up a crowd of investors among the few not presently taking advantage of the late August lull to get in some vacation time before the kids have to go back to school.

The market is expected to see a meaningful reactivation in September, according to a debt capital markets banker who looks for $8 billion to $10 billion of issuance in the month ahead.

Fund flows

The dedicated high-yield bond funds sustained $1.17 billion of net outflows in the week to Wednesday’s close, according to fund-tracker Refinitiv Lipper.

It follows the previous week’s $1.09 billion outflow, and is the fifth consecutive weekly outflow sustained by the junk funds, taking their year-to-date cash flows to negative-$14.33 billion, according to a Prospect News analysis of the data.

The combined funds had $621 million of net daily inflows on Wednesday, according to a market source.

High-yield ETFs had $674 million of inflows on the day.

Actively managed funds were negative on Wednesday, sustaining $53 million of outflows on the day, according to the market source.

Indexes

The KDP High Yield Daily index fell 10 basis points to close Thursday at 50.05 with the yield now 7.64%.

The ICE BofAML US High Yield index was down 10.2 bps with the year-to-date return now 6.136%.

The CDX High Yield 30 index fell 61 bps to close Thursday at 101.96.

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