Forward high-yield calendar grows; secondary soft; Endo, Callon, MultiPlan trade down

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 8 – With a quiet high-yield bond primary backdrop, it was a soft day in the secondary space with the cash bond market down about 1/8 point.

However, while the market was soft, volume was light, with the selling pressure limited to riskier credits, a source said.

Endo Finance LLC’s senior notes were selling off in active trading as the opioid litigation facing the company ramped up.

Callon Petroleum Co.’s recently priced 8% senior notes due 2028 (Caa2/CCC+) were also under pressure with the notes returning to a par-handle.

The sell-off in MultiPlan Corp.’s 5¾% senior notes due 2028 (B3/B-) intensified on Thursday with the notes down almost 4 points on the week.

Quiet week

The dollar-denominated high-yield primary market, which continues to await the pricing of its first post-Independence Day deal, put up another goose egg on Thursday, although there was a substantial build-out of the active calendar, while a shadow calendar continued to take shape.

The Friday session should produce terms on what would be the first deals to clear the market in over a week.

On Thursday Jaguar Land Rover Automotive plc announced plans to sell senior notes (B1/B) in tranches of $500 million and €500 million.

The dollar-denominated tranche features eight-year non-call-three notes talked in the 5½% area, on top of initial guidance in the mid 5% area.

The euro-denominated tranche features seven-year non-call-three notes with initial guidance in the mid-4% area.

Talk on the euro tranche is expected Friday morning, and the deal is set to price later in the day.

Elsewhere, Hong Kong-based Seaspan Corp. is also expected to price its $500 million offering of eight-year senior blue transition notes (BB-/BB) on Friday.

Initial talk is in the low 6% area, and the deal is heard to be two-times oversubscribed, driven into the market by means of a $250 million of amount of reverse inquiry.

Given the fact that the deal is oversubscribed, some market watchers expected it to be accelerated, and priced on Thursday. However that acceleration did not materialize.

If those deals price they will be the first to clear the market since APX Group, Inc. (Vivint Smart Home Inc.) priced July's only deal to date, an $800 million issue of 5¾% senior notes due July 2029, which priced on July 1.

The same headwinds that have lately taken hold of equities are also impacting high yield, according to a trader who focuses on lower-tier investment-grade bonds, crossovers and higher-rated junk.

The trader, who saw some names fall as much as half a point to a whole point on Thursday morning, before staging somewhat of a recovery at midday, blamed volatility, and said that it is definitely impacting the calendar.

News that the Tokyo Olympic Games will be held without spectators as the Japanese capital is forced to enter another state of emergency because of rising Covid-19 cases due to the Delta strain, registered throughout the capital markets, the trader said.

For the second consecutive day, the composite yield to worst of the Merrill Lynch high-yield index hit an all-time tight, 3.78%, on Wednesday, breaking the previous record of 3.8% set on Tuesday, a trader said.

While high-yield issuers would like to lock in capital at the current ultra-low rates, investors are beginning to question whether current junk bond yields, implied by that historically low yield to worst, make sense.

Lately the Federal Reserve has indicated that it intends to taper its $120 billion per month bond purchases, which should send rates higher, the trader noted.

Endo under pressure

Endo Finance’s capital structure was under pressure on Thursday as a risk-off sentiment swept through the market and investors exited riskier names.

The 6% senior notes due 2028 (Caa2/CCC+) dropped 1 7/8 points to close the day at 62 5/8, according to a market source.

There was more than $26 million in reported volume.

Endo’s 9½% senior secured notes due 2027 sank more than 2 points to close the day at 99½.

There was more than $18 million in reported volume.

The trading activity was part of a larger trend of investors shedding risky names, a source said.

Endo is currently facing several lawsuits related to its role in the opioid epidemic.

In Tennessee, a default judgement was issued against the company with the damages to be determined in a trial scheduled for July 26, according to the Seeking Alpha article “Endo International: Bankruptcy Seems Like the Only Practical Option.”

There are also ongoing trials in New York and California.

Purdue Pharma and Mallinckrodt Pharmaceuticals filed for bankruptcy to settle the opioid litigation they faced.

Callon on a par-handle

Callon’s 8% senior notes due 2028 dropped back down to a par handle in active trading on Thursday with lower-quality credits taking the brunt of the selling pressure in the market.

The 8% notes were down 1 point. They were changing hands in the par ¼ to par ½ context, a source said.

There was more than $12 million in reported volume.

The 8% notes have traded on a 101-handle since shortly after pricing.

Callon priced a $650 million issue of the 8% notes at par on June 21.

MultiPlan sell-off continues

MultiPlan’s 5¾% senior notes due 2028 continued to sell off in active trading on Thursday.

The notes dropped another 1 point.

They were changing hands in the 97¾ to 98¼ context heading into the close.

There was more than $12 million in reported volume.

The notes have dropped almost 4 points on the week.

In addition to a soft day for the market, the notes have sold off on concern that MultiPlan would be losing a significant source of its revenue due to a UnitedHealth Group policy change.

Indexes down

Indexes were down on Thursday on a soft day for the market.

The KDP High Yield Daily index dropped 5 points to close the day at 70.35 with the yield 3.61%.

The index rose 8 points on Wednesday and 7 points on Tuesday.

The ICE BofAML US High Yield index dropped 11.7 basis points with the year-to-date return now 4.024%.

The index rose 10.2 bps on Wednesday and 15.5 bps on Tuesday.

The CDX High Yield 30 index fell 35 bps to 109.75.

The index was down 9 bps on Wednesday and 18 bps on Tuesday.

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