Primary, secondary quiet as end-of-year approaches; QEP skyrockets on acquisition, KIK, Antero active

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 21 – Very thin liquidity related to the fast-approaching end-of-year holidays, abetted by capital markets’ volatility related to intensified coronavirus concerns, kept the high-yield primary market quiet on Monday.

It now appears likely that new-issue business for the record-breaking year of 2020, which saw a gargantuan $434.3 billion of issuance, has concluded, having wrapped up with a bang last Thursday, when $2.46 billion cleared in five dollar-denominated tranches.

That conclusion was not foreordained, according to a bond trader who told Prospect News that had the capital markets backdrop been a more supportive one there might have been a drive-by deal, on Monday, or maybe even two.

As it is, owing to the thin liquidity, with a lot of participants taking vacation time, the primary market is likely closed for 2020, the trader said.

Meanwhile, the secondary space was soft on Monday as investors reacted to news of a new coronavirus strain that sent the UK into a partial lockdown.

While the market was soft, volume was light with end-of-year illiquidity setting in during the holiday-shortened week.

QEP Resources Inc.’s junk bonds were in focus on Monday with the notes skyrocketing as the company became the latest acquisition target in the flurry of M&A activity in the energy space.

KIK Consumer Products’ recently priced 7% senior notes due 2027 (Caa2/CCC) were also active with the notes coming in from their highs.

Antero Resources Corp.’s recently priced 8 3/8% senior notes due 2026 (B3/B) were also weaker in active trading on Monday.

$98 million Friday inflows

The dedicated high-yield bond funds saw $98 million of net inflows on Friday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds saw $195 million of inflows on the day.

However high-yield ETFs sustained $97 million of outflows on Friday, the source said.

QEP’s acquisition

QEP’s junk bonds were in focus on Monday with the notes skyrocketing following news the company would be acquired.

QEP’s 5 5/8% senior notes due 2026 jumped more than 20 points to close the day at 110¼.

The notes now trade with a yield of 3.35%, a source said.

The oil and gas company’s 5¼% notes gained almost 11 points to close the day at 105 with the yield now 2.67%.

The notes were among the most actively traded during Monday’s session with each tranche seeing more than $26 million in reported volume.

News broke Monday that Diamondback Energy Inc. would acquire QEP in an all-stock deal that includes debt for an enterprise value of $2.15 billion.

With Diamondback rated Ba1/BBB- and QEP a single B credit, the acquisition “is a huge move from a credit rating perspective,” a source said.

Diamondback’s 3½% senior notes due 2029 currently trade on a 105-handle for a yield of 2.78%, a source said.

Both Moody’s and S&P are eyeing QEP for an upgrade as a result of the acquisition. (See related articles in this issue)

KIK comes in

KIK’s recently priced 7% senior notes due 2027 (Caa2/CCC) were coming in from their highs in active trading on Monday.

The notes returned to a 102-handle and closed the day at 102½, down 1 point from Friday’s close, a source said.

The 7% notes remained active with more than $21 million in reported volume.

KIK priced the 7% notes as part of a two-tranche offering that also included a secured tranche.

As has been the trend, the unsecured notes outperformed their secured counterpart as market players chase yield in an increasingly low yield environment.

However, the unsecured notes were trading off with the broader market weak on Monday, a source said.

Antero active

Antero’s 8 3/8% senior notes due 2026 continued to see high-volume on Monday although the notes were also coming in from their highs.

The 8 3/8% notes were marked at par ¾ bid, 101¼ offered early Monday.

They were changing hands in a tight range between par ¾ and 101 throughout the session.

The notes closed the day at 101, down about ½ point from Friday’s close, a source said.

There was more than $35 million in reported volume during the session.

The notes were down alongside the broad energy sector as crude oil futures sank on renewed travel restrictions.

WTI crude oil settled at $47.79, a decrease of $1.31 or 2.67%, on Monday.

Indexes down

Indexes opened the week in the red after all posted cumulative gains on the week last week.

The KDP High Yield Daily index dropped 8 points to close the day at 68.60 with the yield now 4.53%.

The index posted a cumulative gain of 15 points on the week last week.

The ICE BofAML US High Yield index shaved off 29.9 bps with the year-to-date return now 5.226%.

The index posted a cumulative gain of 35.9 bps on the week last week.

The CDX High Yield 30 index dropped 47 bps to close Monday at 108.6.

The index was up 22 bps on the week last week.

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