Morning Commentary: High-yield market opens flat; junk ETFs see strong daily inflows

By Paul A. Harris

Portland, Ore., Feb. 7 – With the major stock indexes in the red, as investors continue to weigh the impact the coronavirus might bring to bear upon the global economy, junk bonds opened unchanged on Friday, according to market sources.

Coronavirus is already having an impact, a high-yield investor asserted on Friday morning, pointing out that Macau casinos have already been shut down for two weeks due to the coronavirus.

Indeed, the virus has already taken down one gaming/lodging/entertainment M&A deal, according to news reports out of Hong Kong. Macau's Melco Resorts & Entertainment is withdrawing from a stake in Australia’s Crown Resorts because of the casino closures and depressed travel numbers, reports say.

Coronavirus is also dinging the already beaten up energy sector, according to market sources.

While the broad high-yield index is up 0.62% for 2020 to Thursday’s close, energy is down 1.82% in the same period, the investor said.

On Thursday Parsley Energy became the latest in a parade of energy companies tapping the junk new issue market so far in the new year, mostly to refinance debt.

The new Parsley Energy LLC/Parsley Finance Corp. 4 1/8% senior notes due February 2028 (Ba3/BB/BBB-) were straddling issue price on Friday morning at 99 5/8 bid, par 1/8 offered, the investor said.

The $400 million issue, which the Austin, Tex.-based energy exploration and production company brought in order to redeem its existing 6¼% notes due 2024, priced at par, inside of early price talk in the 4 3/8% area.

“They took all of the juice out of it,” the investor lamented.

However, double B junk bonds are performing well in general, the source commented.

The new Centene Corp. 3 3/8% senior notes due February 2023 (Ba1/BBB-/BB+) were trading at par 3/8 bid, a premium to their new issue price, on Friday, the investor said.

The $2 billion megadeal came Wednesday at par and was a blowout, with orders exceeding $6 billion, sources said.

Thin calendar

A busy week in the primary market appeared to be coming to a quiet close on Friday morning.

One deal is in the market as a possible Friday execution.

Husky III Holding Ltd. has been on the road with an aggressively structured $450 million offering of five-year senior PIK toggle holdco notes (Caa2/CCC) backing a dividend, sources say.

Early talk was in the 12% area.

However, recent conversations have taken place in the 12% to 13% range, with the deal coming at a discount of as much as 2 points, a trader said on Friday morning.

The market is also looking for concessions in the deal’s covenant package, which the trader also described as aggressive.

However, there was no fresh word on the Husky deal as of mid-morning Friday, the trader said.

Hefty inflows to ETFs

High-yield ETFs saw $601 million of daily cash inflows on Thursday, according to market sources.

It was the second big daily inflow in a row for the junk ETFs, which saw $822 million of inflows on Wednesday, a source said.

Actively managed high-yield funds saw $150 million of inflows on Thursday.

News of Thursday’s daily inflows came on the heels of a Thursday afternoon report that the combined high-yield funds sustained $784 million of net outflows in the week to the Wednesday, Feb. 5, close, according to information reported by Lipper US Fund Flows.

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