Junk market calm pre-holiday; Europe readies two deals; Tenet busy, Tesla keeps firming

By Paul Deckelman and Paul A. Harris

New York, Sept. 1 – As expected, the high-yield market began the new month of September on Friday and closed out the traditional pre-Labor Day late-summer activity lull on a quiet note.

The domestic primary arena remained becalmed, although syndicate sources expect things to pick up following the extended holiday weekend in the United States.

In Europe, meanwhile, the sources said that a pair of deals would be marketed during the upcoming week. Spanish fashion retailer Grupo Cortefiel is preparing a two-part offering of seven-year secured paper while U.S.-based specialty chemical producer Kronos Worldwide, Inc. will be shopping a euro-denominated offering of eight-year secured notes.

Back in the dollar market, traders said volume was very light, with many market participants taking an early exit.

Even Tesla, Inc., probably the most active junk market issue in recent sessions, saw but a handful of large-sized trades. As has been the case over the last few sessions, the electric car manufacturer’s recently priced issue was firming from the lows which it had hit shortly after pricing in mid-August.

Hospital operator Tenet Healthcare Corp.’s bonds were the most active credit during the otherwise sleepy session, pushing upward in the wake of the company’s Thursday announcement of management changes and a shareholder rights plan.

Statistical market performance measures finished higher across the board for a third straight session on Friday.

The indicators were meantime higher than where they had finished out last Friday, Aug. 25, marking the second consecutive week of Friday over-Friday improvements.

Cortefiel on calendar

The Sept. 4 week gets underway in Europe on Monday with a pair of deals parked on the active forward calendar.

Madrid-based fashion retailer Grupo Cortefiel plans to start a European roadshow on Monday for a €600 million two-part offering of seven-year senior secured notes (B2/B).

The deal is coming in a pair of tranches both sized at €300 million, one of fixed-rate notes while the other features floating-rate notes.

Joint bookrunner Credit Suisse will bill and deliver. Credit Agricole and SG are also joint bookrunners.

Proceeds will be used to pay off the company’s senior facilities.

Kronos starts Monday

Kronos Worldwide plans to start a roadshow on Monday for a €400 million offering of eight-year senior secured notes (Fitch: BB).

Deutsche Bank has the books.

The Dallas-based producer of titanium oxide products intends to use the proceeds to repay debt and for general corporate purposes.

Post Labor Day

Meanwhile the dollar-denominated calendar awaits the conclusion of the Labor Day holiday weekend in the United States, which got underway following Friday’s close.

There will be a few deals in the United States in the week that starts Tuesday, a syndicate banker said, adding that an LBO deal is set to go for sure.

September should be an active month, with $20 billion to $25 billion of dollar-denominated volume and €10 billion to €15 billion of European high-yield business.

Market conditions are presently very good, the banker said, but he added that the Federal Reserve, the European Central Bank, the U.S. government and North Korea all have the potential to erode those very good conditions.

Fund flows

Cash flows for dedicated high-yield bond funds were decidedly negative in August, the banker said.

The four-week trailing average comes to $838 million of outflows per week up to and including the latest weekly report from Lipper US Fund Flows, issued Thursday for the week that ended at Wednesday’s close.

According to that report, high-yield bond funds sustained $277 million of outflows during the most recent weekly reporting period.

However the only class to actually see outflows was high-yield mutual funds, which suffered $800 million of outflows during the period. High-yield ETFs were actually positive, seeing $523 million of inflows during the week to Wednesday’s close, the banker said.

Issuance figures hold steady

With no new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers having priced on Friday, or during the week as a whole, for a second straight week that left year-to-date issuance for 2017 unchanged from the week before.

It stood at some $174.54 billion in 326 tranches, running about 16.6% ahead of the $149.74 billion which had priced in 226 tranches by this point on the 2016 calendar, the Prospect News data indicated.

The past week was only the third week so far this year which has seen a complete shutout volume-wise. Besides this week and last, no new deals priced during the week of July 1 through July 7 either.

Volume slows markedly

As expected, the day’s trading volume on Friday was just a fraction of what it had been on Thursday – when things were already fairly quiet, heading into the Labor Day holiday break.

A trader – who said there was “not much volume, things were totally dead” – estimated total turnover at only about $600 million, versus about $1.5 billion traded on Thursday, well down from the average daily range of between $2 billion and $4 billion.

“We were just sitting here, watching paint dry,” was how another trader put it.

Firmer tone seen

Despite a lack of volume, traders said that Friday’s junk market seemed to have a firmer tone.

“The market has a definite bid to it,” one trader said, “with buyers around.

“It feels better, maybe unchanged to up ¼ point.”

He said that there was no real negative response to the disappointing August jobs figure released by the federal government on Friday morning.

The Labor Department reported that non-farm payrolls increased by 156,00 jobs during the month – somewhat short of the roughly 180,000 jobs figure that Wall Street had been expecting.

The unemployment rate, which had been expected to hold steady at 4.3%, instead crept up by 1/10 point to 4.4%.

The trader said that the jobs numbers may have contributed to Friday’s better tone, since they make it a little less likely that the Federal Reserve will move any time soon to continue pushing interest rates upward “and expectations that rates will stay low for longer” are a positive for junk and other fixed-income markets.

A second trader seemed to discount the impact of the jobs figures, noting that this was “something like the seventh consecutive year that the August numbers were lower than the consensus,” which he said was a sign that there may be a recurring seasonal or technical reason for the drop-off, apart from the economy’s own performance.

He meantime said that “stuff in our market did better as the week progressed,” despite the drying up of volume and attributed that, in part to “not having any primary issuance around” for the last two weeks.

Tenet tops actives

A trader noted that Tenet Healthcare’s 6¾% notes due 2023 were the most active issue of what was a relatively quiet session, as more than $11 million of those notes changed hands.

He saw the bonds up about ½ point to the par level.

A second trader pegged the bonds up 5/8 point on the day.

The first trader cited a loss that the Dallas-based hospital operator recently reported on an asset sale and suggested that “maybe it was less than expected,” encouraging investors.

Another market source noted the company’s Thursday announcement that its chairman and chief executive officer, Trevor Fetter, will step down from his roles as director and CEO at the earlier of March 15, 2018 or when a successor is appointed.

That followed demands by activist investors for a management change.

Additionally, Tenet has begun what it calls “a process to refresh the composition of its board” in order to ensure that “the board has the best mix of skills and experience to maximize the future value of the company.”

Tenet further said that it was implementing a shareholder rights plan – which would make a takeover of the company more difficult – citing the need to preserve its valuable tax net operating loss carryforwards, which amount to $1.7 billion.

Tesla better, less busy

Elsewhere, a trader said that Tesla’s 5.3% notes due 2025 continued to firm off their recent lows, gaining about ¼ point to go home at just under 99 bid.

But he said there was “hardy any trading going on in it,” only around $4 million, versus the more than $32 million of the notes which had traded hands on Thursday, when it was the most active junk issue.

Another trader agreed that Tesla’s issue “has been one of the volume drivers this week and has traded well.”

He saw the bonds push up to 98¾ bid.

The Palo Alto, Calif.-based electric car manufacturer and power storage technology company’s $1.8 billion megadeal finally priced at par on Aug. 11 as a forward calendar offering after upsizing from an originally announced $1.5 billion size. But the bonds struggled almost from the get-go when they were cleared for secondary dealings, getting gradually hammered down to a closing price around 97½ by Aug. 18, a week after their pricing, and staying down around a 97ish handle for a few sessions after that before finally “rounding a corner,” as a trader said, and beginning to push back upward.

Indicators continue firming

Statistical market performance measures finished higher across the board for a third straight session on Friday. They had been mixed on Tuesday, after being up for the three sessions before that, and had gotten better on Wednesday and continued to firm on Thursday and Friday.

The indicators were meantime higher than where they had finished out the previous Friday, Aug. 25, marking the second consecutive week of Friday-over-Friday improvement after being mixed during the week ended Aug. 18 and lower all around the week before that, ended Aug. 11.

The KDP Daily High Yield Index moved up by 5 basis points on Friday to close at 72.12, its eighth straight gain after five consecutive losses before that. It had jumped by 10 bps on Thursday after moving up by 3 bps on Wednesday.

For a second session in a row Friday, its yield came in by 2 bps, matching Thursday’s gain, to close at 5.19%, its fifth straight narrowing. It had also tightened by 1 bp on both Tuesday and Wednesday after narrowing by 3 bps on Monday.

Those levels compared favorably with last Friday’s 71.84 index reading and 5.28% yield.

The Markit CDX Series 28 High Yield Index gained nearly 5/32 point on Friday, a market source said, going home at 107 3/8 bid, 107 7/16 offered, its third straight session on the upside. On Thursday, it rose by 7/32 point, after having risen by 5/32 on Wednesday.

It was up from 106 29/32 bid, 106 15/16 offered the previous Friday.

And the Merrill Lynch North American High Yield Index firmed by 0.051% on Friday, third consecutive advance. It was also up by 0.181% on Thursday and by 0.089% on Wednesday, versus Tuesday’s 0.019% loss, which had been its first setback after six straight sessions on the upside.

Friday’s improvement raised the index’s year-to-date return to 6.147% from 6.093% on Thursday. It remained down from its Aug. 2 finish at 6.233%, its 2017 year-to-date peak level.

For the week, the index rose by 0.405%, its third weekly gain after one weekly loss.

It also rose by 0.344% last week.

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