Morning Commentary: Tenet bonds slip on earnings; oil prices, rate outlook weigh on junk

By Paul A. Harris

Portland, Ore., Nov. 6 – Bonds of Tenet Healthcare Corp. were lower on the back of an earnings report that came late Monday, market sources said.

The THC Escrow Corp. 8 1/8% senior notes due April 2022 were 1¼ points lower post-earnings, at 103¾ bid, an investor said.

The longer-maturity THC Escrow Corp. III 5 1/8% senior secured second-lien notes due May 2025 were a point lower at 95½ bid, the source added.

Although the Dallas-based health care services company posted earnings that topped analysts’ projections, full-year guidance came in below the Street's expectations, the investor remarked.

Elsewhere, high-yield ETF share prices were better at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.16%, or 14 cents, at $84.47 per share.

However, continuing weakness in oil prices and an expectation that rates will climb regardless of the performance of the U.S. economy are weighing upon high-yield bonds, the investor said.

The barrel price of West Texas Intermediate crude for December 2018 delivery was sharply lower at $62.02 on Tuesday, down $1.08, or 1.71%, at mid-morning.

The California Resources Corp. 8% senior secured second-lien notes due December 2022, said by some market watchers to be a tracking bond for the performance of the high-yield energy sector, were 89 bid on Tuesday, the investor said.

That bond traded at 96 on Oct. 2, the source added.

“High yield remains highly correlated with oil prices,” the investor remarked.

Recent issues from the oil patch were significantly lagging issue prices on Tuesday, sources said.

The Transocean Inc. (RIG) 7¼% senior guaranteed notes due November 2025 were 96½ bid, 97½ offered on Tuesday. The $750 million issue priced at par on Oct. 22.

The W&T Offshore, Inc. 9¾% second-lien notes due November 2023 were 97¼ bid, 98¼ offered on Tuesday. The $625 million issue priced at par on Oct. 5.

Away from energy, bonds that came in a high-profile private placement from Uber Technologies Inc. were straddling issue prices, or slightly better, on Tuesday.

The Uber 7½% notes due November 2023 were par bid, par ¾ offered. The $500 million tranche priced at par on Oct. 18.

The Uber 8% notes due November 2026 were par ¼ bid, 101 offered. The $1.5 billion tranche priced at par, also on Oct. 18.

Uber undertook its novel, upsized $2 billion (from $1.5 billion) two-part private placement in order to limit the circulation of the San Francisco-based ride sharing company's private financial information, market sources said.

Quiet primary

The new issue market has been conspicuously quiet in the early part of the Nov. 5 week.

HC2 Holdings, Inc. remains in the market with a $535 million offering of five-year senior secured notes (Caa1/B-), a deal held in the market over the past weekend.

Word in the market is that the deal has been discussed with a 10% coupon, discounted by 3 to 5 points, to yield 11½% to 12%, the investor said, adding that covenant changes are expected.

The perception in the market is the deal is coming from a highly motivated issuer and will price, a trader said.

Meanwhile, RegionalCare Hospital Partners Holdings, Inc. and LifePoint Health, Inc. are marketing $1,575,000,000 of eight-year senior notes (Caa1/CCC+) on a Tuesday through Thursday roadshow.

Initial guidance on the merger financing is in the 9¼% area, sources say.

The word in the market had the deal attracting big orders at that level, the investor said, but added that Tenet earnings could register an impact on the demand.

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