Morning Commentary: Rent-A-Center terminates acquisition; energy decline intensifies

By Paul A. Harris

Portland, Ore., Dec. 18 – The high-yield index was a sector-by-sector story on Tuesday morning, according to a trader in New York.

With the stock indexes solidly in the green at mid-morning, high-yield ETF shares were flat. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.09%, or 7 cents, at $82.30 per share.

However, the energy sector, where news appears to be going from bad from worse, was taking an outsized pounding at mid-morning.

The barrel price of West Texas Intermediate crude for January 2019 delivery was down $1.20, or 2.41%, at $48.68, and most of the energy indexes were in the red (the exception being natural gas).

Petroleum-related issues trading on Tuesday included EP Energy Corp.

The EP Energy LLC/Everest Acquisition Finance Inc. 8% senior secured notes due November 2024 were down a couple of points at 80½ bid, the trader said, noting that those bonds were trading at par in November.

The bellwether California Resources Corp. 8% senior secured second-lien notes due December 2022, a big liquid issue employed by high-yield bond investors for the purpose of tracking crude oil prices in the index, was lower on the day at 71¾ bid. Prior to Oct. 3, when oil prices began their slide, those bonds traded as high as 97, the source said.

Rent-A-Center drops deal

Away from energy, news that Rent-A-Center Inc. terminated a deal to be acquired by affiliates of Vintage Capital Management LLC sent Rent-A-Center share prices lower, but the Rent-A-Center 6 5/8% senior notes due November 2020 were hovering around par, according to the trader, who expects the price to decline.

Prior to the termination news investors were expecting to be taken out of that paper by means of a call or a change of control, the source remarked.

And the payday lender portion of the financial sector was taking an outsized hit on Tuesday.

TitleMax Co.’s bonds were caught in the downdraft. The TMX Finance LLC/TitleMax Finance Corp. 11 1/8% senior secured notes due April 2023 have fallen 6 to 7 points in the past day, according to the trader, who marked them 83¼ bid on Tuesday morning.

During the same time period bonds of payday lenders ACE Cash Express, Inc. and CURO Group Holdings also underwent price declines, the source added.

Previous to the Trump administration coming to power, the Consumer Financial Protection Bureau issued regulations intended to curb predatory aspects of the payday lending business, which the bureau’s new leadership has sought to dismantle.

Now with Democrats having gained control of the House of Representatives, resistance to dismantling those curbs is anticipated.

Meanwhile, it was positive news for Refinitiv’s unsecured paper.

The Refinitiv 8¼% notes due November 2026 (Caa2/B-/B+) were up ¼ of a point Tuesday morning at 93 bid, 94 offered.

The $1,575,000,000 tranche priced at par on Sept. 18, a week before the market began to widen.

Monday outflows

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

High-yield ETFs sustained $249 million of outflows on the day.

Actively managed high-yield funds saw $300 million of outflows on Monday, the trader said.

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