Junk ends volatile week with gains; Tenet drags down health care sector peers

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 21 – The junk bond secondary space saw a fitting end to a volatile week with a low open giving way to a strong rally.

The CDX index “was flat then it just bounced,” a source said, with the index returning to a 98-handle.

The cash bond market was off as much as ¼ point at the open but also bounced to close the day and the week with gains.

The market shrugged off Treasury yields at multidecade highs and recession concerns due to renewed optimism over a dovish pivot from the Fed, which reignited the risk-on sentiment seen earlier in the week.

Carnival Corp.’s 10 3/8% senior priority notes due 2028 (B2/B+), the only new paper to price over the course of the week, continued to improve with the notes reclaiming a 99-handle.

However, the rally in the market was not shared equally across sectors with Tenet Healthcare Corp.’s earnings results dragging down its industry peers.

Tenet’s senior notes were off 1 to 3 points on the disappointing results.

However, CHS/Community Health Systems Inc.’s already ailing senior notes sank another 3 to 5 points with earnings expectations low.

RegionalCare Hospital Partners Holdings, Inc./LifePoint Health, Inc.’s 9¾% senior notes due 2026 (Caa1/CCC+) were dragged down 4 points by Tenet’s results.

Primary

Carnival Corp. priced the week's sole deal, a $2.03 billion issue of 10 3/8% senior priority notes due May 2028 (B2/B+).

The drive-by deal, which was upsized from $1.25 billion, priced at 98.465 to yield 10¾%, playing to a big book that was flush with $750 million of reverse inquiry, enabling the company to reel in pricing by as much as 75 basis points between the time the deal was announced on Tuesday morning, and the time it priced on Tuesday afternoon.

In its wake market sources assert that Tuesday's Carnival trade demonstrates the new issue market is open, especially to known, on-the-run issuers with ratings in the high single B- and double B range.

However, there were no new deal announcements on Friday morning. And the active forward calendar was all but empty, heading into the weekend.

Carnival reclaims 99-handle

The new Carnival notes reclaimed a 99-handle as the broader market rallied midway through the session.

The 10 3/8% notes were flat early in the session with the notes in the 98½ to 99 context.

However, they gained steam as the session progressed to close the day in the 99 to 99½ context.

The notes remained active on Friday with $27 million in reported volume.

While the broader market was on the rise, Carnival’s 9 7/8% senior secured second-priority notes due 2027 continued their downward trend.

The notes fell another ¾ point to close Friday at 90 with the yield 12.75%, a source said.

There was $26 million in reported volume.

The 9 7/8% notes have fallen about 5 points since Carnival priced the 10 3/8% senior priority notes.

While unsecured, the notes, which were issued by a newly created subsidiary, rank higher in the capital structure than Carnival’s other unsecured notes.

Their hefty coupon and the $8.2 billion in cruise ships serving as collateral on the 10 3/8% notes have made them an attractive alternative to Carnival’s secured debt.

Tenet’s results

Tenet Healthcare was a market mover on Friday with the health care services company’s notes lower following disappointing earnings.

Tenet’s results dragged down its industry peers whose senior notes saw losses that outpaced Tenet’s.

Tenet’s 6 1/8% senior notes due 2028 (B3/B-) were the most actively traded tranche in its capital structure with the notes falling 1¾ points to close the day at 83½ with the yield 9 7/8%, a source said.

There was $32 million in reported volume.

The notes sank 5 points the previous session.

Tenet’s 6 1/8% senior secured notes due 2030 (B1/BB-) were off 2 points to close the day hovering on either side of 89, a source said.

The yield was about 8%.

The 6¼% senior secured notes due 2027 (B1/BB-) fell 1 point to 92½ with the yield 8 3/8%.

There was $12 million in reported volume.

Tenet’s stock fell more than 30% after weak results and fourth-quarter revenue guidance that came in below expectations.

The guidance sank other hospital chains, a source said.

Community Health’s senior notes saw losses that outpaced Tenet’s with the health care system’s capital structure off 3 to 6 points.

Community Health’s 5¼% senior secured notes due 2030 (B2/B) were the most active in the debt stack.

The notes fell 2 points to 64¾ with the yield 12 5/8%. There was $11 million in reported volume.

Community Health’s 6 7/8% senior notes due 2029 (Caa2/CCC) sank 5 points to 37¾ with the yield about 28½%.

The 8% senior secured notes due 2026 (B2/B) sank 4¾ points to 80¼ with a yield of 15¾%.

The 5 5/8% senior secured notes due 2027 (B2/B) fell 4 points to 72 with a yield of 14½%.

RegionalCare’s senior notes were also taking a hit with the community hospital chain’s 9¾% senior notes due 2026 (Caa1/CCC+) falling 4 points in heavy volume.

The notes traded down to 82½ with the yield 15 5/8%.

RegionalCare and Community Health were “trading down in sympathy,” with Tenet and suffered larger losses because they were weaker credits, a source said.

Expectations are low heading into the hospital operator’s earnings.

Community Health is expected to post earnings results on Oct. 27.

Fund flows

The high-yield ETFs saw a hefty $577 million amount of daily cash inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $88 million of outflows on Thursday, the source said.

News of Thursday's daily flows follows a Thursday afternoon report that the combined high-yield bond funds sustained $144 million of net outflows in the week to the Wednesday, Oct. 19 close, according to fund tracker Refinitiv Lipper.

The flows of the actively managed funds accounted for that entire total, and more, as the asset managers sustained $239 million of outflows on the week to Wednesday's close, the market source said.

The combined high-yield funds have now undergone nine consecutive weeks of cash flows.

Year-to-date cash flows of the combined junk funds came to negative-$53.9 billion at Thursday's close, according to the market source.

Indexes

The KDP High Yield Daily index fell 4 points to close Friday at 50.55 with the yield 8.07%.

The index fell 69 points on Thursday and 32 points on Wednesday after rising 15 points on Tuesday and 28 points on Monday.

The index posted a cumulative loss of 62 bps on the week.

The ICE BofAML US High Yield index shaved off 7.8 basis points with the year-to-date return now negative 13.954%.

The index was off 9.8 bps on Thursday and 49 bps on Wednesday after rising 44.9 bps on Tuesday and 50.9 bps on Monday.

The index posted a cumulative gain of 29.2 bps on the week.

The CDX High Yield 30 index jumped 91 bps to close Friday at 98.35.

The index fell 47 bps on Thursday and 45 bps on Wednesday after gaining 75 bps on Tuesday and 121 bps on Monday.

The index posted a cumulative gain of 195 bps on the week.

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