Morning Commentary: Virus concerns take junk down 1-2 points amid global stock sell-off

By Paul A. Harris

Portland, Ore., Feb. 24 – Monday in New York got underway to news of a large-scale global sell-off in equities, as apprehensions about coronavirus continued to grip investors.

The American stock market fell in line at the open with indexes down around 3%.

Junk bonds were down 1-2 points in thin trading, according to a bond trader in New York.

Recent issues were outperforming the rest of the index, down 1¼ points to 1½ points on the morning, the trader said.

The new Zayo Group (Front Range BidCo, Inc.) 4% senior secured notes due March 1, 2027 (B1/B) were down 1¼ points at 98½ bid. The unsecured Zayo 6 1/8% notes due March 1, 2028 were down 1 5/8 points at 99½ bid.

That deal came last Thursday in a massively oversubscribed trade that saw a $1.5 billion secured tranche and a $1.08 billion unsecured tranche both price at par.

Investors continue to weigh their positions as the apparent global economic impact of coronavirus continued to widen on Monday, with news reports out of China – where the epidemic is said to have impacted more than 75,000 people – that millions of small business are presently facing cash shortfalls.

The impact of the virus on supply chains is also making itself felt unmistakably in the high-yield bond market, according to a buyside source in Europe.

Bonds of French container transportation and shipping firm CMA CGM SA were down 3 points to 4½ points.

The Marseille-based company, which has lately faced “blank sailings” out of China due to coronavirus, has been in talks with lenders to extend around $400 million of bank debt and to refinance €750 million of bond debt coming due in early 2021.

Investors are concerned that coronavirus will render the company’s refinancing efforts much more difficult, if possible at all.

The CMA CGM euro-denominated 7¾% senior notes due January 2021 were down 3 points at 89 bid, 90 offered on Monday, the buysider said.

The negative news on the transportation front was causing the already badly damaged high-yield energy sector to take an outsize hit on Monday, the trader said.

The primary

Coronavirus-related volatility all but sidelined the new issue market as the final week in February got underway.

Should the volatility continue it could make for a quiet week, indeed, in the primary market, a sellside source said.

The J.P. Morgan Global High Yield and Leveraged Finance Conference, now underway in Miami, could also dampen issuance in the early part of the week, the source added.

As the new week got underway at least two deals were on the road in the United States and western Europe.

Advantage Solutions Inc. started a roadshow on Friday for $1.145 billion of notes, including $345 million 6.5-year senior secured notes with initial talk in the mid-to-high 6% area and $800 million seven-year senior unsecured notes with initial talk in the high 10% area.

And Netherlands-based geo data services provider Fugro NV was scheduled to start a roadshow on Monday in London for a €500 million offering of five-year senior secured notes.

Friday outflows

The dedicated high-yield bond funds saw $373 million of net outflows on Friday, according to an investor.

High-yield ETFs sustained $418 million of outflows on the day.

Actively managed high-yield funds were positive seeing $45 million of inflows on Friday, the source added.

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