Primary stays becalmed; new Tesla tops actives; supermarkets remain under pressure; energy quiets down

By Paul Deckelman and Paul A. Harris

New York, Aug. 29 – For yet another session – the seventh in a row – the high-yield primary market remained quiet on Tuesday, with no deals expected ahead of the looming Labor Day holiday break in the United States.

Tesla, Inc.’s recently priced new issue was once again active – in fact, the busiest high yield credit of the session – with the electric car manufacturer’s bonds seen retreating slightly after having risen over the past few trading days.

Traders also saw some activity in office supply retailer Staples, Inc.’s recently priced new deal, with the notes having firmed slightly.

Away from those recently priced deals, it was another tough day for supermarket issues such as Albertsons Cos. LLC, Fresh Market, Inc. and Ingles Markets Inc. in the wake of price-cutting by sector peer Whole Foods Markets, now a division of retailing giant Amazon.com.

Cloud computing company Rackspace Hosting Inc.’s bonds were seen losing ground.

Energy sector names were mostly quiet as market participants assessed the impact that Hurricane Harvey’s damage along the Texas Gulf Coast will have on the U.S. energy industry.

Statistical market performance measures turned mixed on Tuesday, after having been stronger all around on Monday, its third straight higher session. The indicators had also been mixed over the previous four straight sessions before that.

The dollar-denominated primary market remained sidelined on Tuesday, amid thin market liquidity.

New issue activity is expected to remain muted in the run-up to the Labor Day holiday weekend in the United States, which gets underway following Friday's close.

Tesla trading remains busy

For a second session in a row, Tesla, Inc.’s 5.3% notes due 2025 were among the most actively traded credits on the session, in fact topping the day’s Most Actives list with over $19 million having changed hands, a trader said.

He saw the bonds going home at 98¼ bid, which he said was actually down 1/8 point on the day.

Another trader agreed that Tesla “was pretty active – but they didn’t really go anywhere.”

He too saw the bonds off 1/8 point around that 98¼ bid level.

The Palo Alto, Calif.-based electric car manufacturer and power storage technology company priced that $1.8 billion regularly scheduled forward calendar issue at par back on Aug. 11, after upsizing the issue from an originally announced $1.5 billion.

Since then, those bonds have been actively traded most days – Friday was the major exception to the rule, with only about $4 million traded.

After pricing, Tesla has mostly been struggling, gradually moving down to 97-handle territory, before finally seeming to bottom down there and turn slightly back upward last week, rising to around the 98 bid level and beyond.

Staples edges up

Also among the recently issued credits, Staples Inc.’s 8 ½% notes due 2025 were quoted up 1/8 point on Tuesday, ending at 96 7/8 bid.

A trader saw more than $8 million of the notes having traded – a fair amount on a relatively quiet day.

The Framingham, Mass.-based office supply retailer priced $1 billion of those notes at par on Aug. 15; after the issue was first downsized from an originally announced $1.6 billion and then from $1.3 billion.

After several days of solid volume, market interest just faded away, even as prices eroded. The new Staples paper struggled pretty much from the get-go, bottoming in a 96ish context. While it had recently been seen trading with a 97ish handle, the bonds have dipped below that point over the last few sessions, albeit on low volume.

Energy issues calm down

Apart from the recently priced deals, energy credits have recently been topical, with Hurricane Harvey causing massive flooding in southeastern Texas, home to a sizable chunk of the U.S. energy industry’s production infrastructure.

But a trader on Tuesday said “not really” when asked whether the sector was showing much in the way of activity that session.

For instance, he said that sector bellwether California Resources Corp.’s 8% notes due 2022 “didn’t really trade today – there was very little volume,” while another normally busy oil and natural gas credit, Oasis Petroleum Inc., was likewise little traded.

Another trader meantime said that California Resources’ notes managed to end “a little bit better,” pegging the notes in a 54¼ to 54¾ range.

But he too admitted that “I can’t say that there were a ton of other [energy names] trading.”

At another desk, a market source saw Denbury Resources Inc.’s 6 3/8% notes due 2021 slipping a point to 54½ bid.

As for domestic crude oil prices, they were only slightly lower on the day, as the market assessed the damage from Harvey.

October-delivery West Texas Intermediate crude fell 13 cents on the New York Mercantile Exchange on Tuesday, to $46.44 a barrel.

Freeport little seen

The news that Freeport McMoRan Inc. had reached a settlement with the government of Indonesia of their long dispute over a big copper mine in that country, allowing the facility to be restarted, was largely a non-event in Junkbondland, a trader said.

He added that the Phoenix-based mining and oil and natural gas concern’s “whole structure didn’t trade much today.”

“There was little or no volume in it.”

Supermarket suffering continues

There was some trading going on among supermarket bonds, still reeling from the news that Amazon.com, the new owner of the upscale Whole Markets store chain, had slashed prices on some items by as much as 43% on Monday when it officially closed its acquisition of the grocer, sparking fears of potentially ruinous price war against a deep-pocketed opponent in what is already a pretty low-margin line of business.

A trader saw Albertsons’ 6 5/8% notes due 2024 “trading around a little bit,” around ½ point lower on the day at 95½ bid, with about $9 million traded.

Sector peer Ingles Markets’ 5¾% notes due 2023 lost more than ½ point to end at 98 bid, on $8 million of volume.

He also saw Whole Markets direct competitor Fresh Markets’ 9¼% notes due 2023 down around ¼ to ½ point, at 75 bid, but said “they didn’t really trade that much.”

Rackspace in retreat

Rackspace Hosting’s 8 5/8% notes due 2024 were seen down a full point at 106½ bid, with over $11 million traded.

But traders did not see any fresh news out on the San Antonio-based cloud computing company to explain the downturn.

Indicators turn mixed

Statistical market performance measures turned mixed on Tuesday, after having been stronger all around on Monday, its third straight higher session. The indicators had also been mixed over the previous four straight sessions before that.

The KDP Daily High Yield Index firmed by 1 basis point on Tuesday to end at 71.94, its fifth straight advance. The index had jumped by 9 bps on Monday.

Its yield narrowed by 1 bp on Tuesday to 5.24%, its second consecutive tightening; it had also come in by 3 bps on Monday after having been unchanged on Friday.

But the Markit CDX Series 28 High Yield Index retreated by around 1/16 point Tuesday to close at 106 7/8 bid, 106 29/32 offered, its first loss after three straight gains, including Monday, when it had edged up by around 1/32 point.

And the Merrill Lynch North American High Yield Index also turned lower Tuesday after six straight sessions on the upside, losing 0.019%. It had firmed by 0.103% on Monday.

The loss dropped the index’s year-to-date return to 5.807% from 5.828% on Monday. It remains well down from its Aug. 2 finish at 6.233%, its 2017 year-to-date peak.

Stephanie N. Rotondo contributed to this review

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