Morning Commentary: PG&E continues slide; heavy volume driven by hedge funds: trader

By Paul A. Harris

Portland, Ore., Jan. 15 – Bonds of troubled San Francisco power provider Pacific Gas & Electric Co. continued their slide on Tuesday, trailing a Monday notice from the company that it expects to make a Chapter 11 bankruptcy filing on or about Jan. 29, a New York-based trader said.

Trading is heavily concentrated on the 6.05% notes due 2034, the source said, noting that in the late morning they were down 2 to 3 points at 77¼, somewhat off the morning lows.

They traded late Monday at 80.

Hedge funds rather than investment-grade accounts represent the lion’s share of the volume, the source said, adding that some of the hedge funds may have gotten into the distressed utility's paper a little early and are now selling.

Away from the distressed world, bonds of Netflix, Inc. improved on news that the company is raising its subscription prices between $1 and $2 for customers in the United States.

The Netflix 5 7/8% senior notes due November 2028 were up 3/8 of point on Tuesday morning at par 1/8 bid.

New subscribers will be charged the higher rates immediately. Existing subscribers will see their bills go up in the coming months.

Meanwhile the debut and sole dollar-denominated new issues of 2019 – the Targa Resources Partners LP 6½% senior notes due July 2027 and the 6 7/8% senior notes due January 2029 – were unchanged to slightly lower on the morning, with the short-dated paper trading at 101 3/8, down 1/8 of a point, and the 10-year bond trading just under 102, unchanged.

Both tranches of the $1.5 billion deal (Ba3/BB) priced at par last Thursday, playing to $8 billion of demand from more than 240 accounts, according to an investor who participated.

In the wake of Targa, the primary market went back into suspended animation, the state in which the high-yield new issue bazaar has spent nearly all of its time since Nov. 28.

Targa proved that the primary market was open for issuers willing to pay the price, an investment banker said, calculating that Targa paid between 62.5 basis points to 100 bps of concession to issue the new bonds.

Monday inflows

The cash flows of the dedicated high-yield bond funds were positive on Monday, a trader said.

High-yield ETFs saw $161 million of inflows on the day.

Actively managed funds saw $55 million of inflows on Monday.

The combined funds were tracking a hefty $3.5 billion of net inflows in the week that began with the Jan. 10 open and is set to conclude with Wednesday's close.

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