of the easier sectors to quantify in terms of
the impact on supply and demand, said
Michael Temple, director of US credit
research at Amundi Pioneer.
“The large liquid energy market and by
reference energy credits and equities are
really taking the full impact,” he said.
“Beyond that we’ve seen weakness in
consumer travel and leisure types of
industries.”
UBS analysts said on Thursday that oil
prices were now below average break-even
levels.
“The latest [spread] underperformance
appears to be realigning, not
overshooting, that reality,” UBS said a
note to clients.
That said, the bank’s analysts are
forecasting a rebound in oil prices near
US$58-$60 in the second half of the year,
assuming Opec responds with lower
quotas in March and demand normalises.
“We view the risks as more balanced in
HY energy and are cutting our
underweight to neutral,” UBS said.
Yet energy names that in many cases
were already struggling have taken
another leg down in the secondary market.
Many of the most beat-up names were
already trading at distressed levels, such as
GULFPORT, whose 6.625% 2023 notes
dropped 14 points on Thursday to 45.25, or
WHITING PETROLEUM, which saw its 5.75%
2021s fall 12.5 points to 55.50.
But there were also shocks for
CONTINENTAL RESOURCES, which reported
disappointing earnings on Thursday.
Having traded at 101 on Wednesday, its
Ba1/BBB- rated 4.90% 2044 notes dropped
more than 11 points on Thursday to trade
at 90 after the oil and gas producer
company forecast lower-than-expected
CASHmOWûFORûTHEûYEAR
4HEûlRMûFORECASTû53M
MûOFû
FREEûCASHmOWûFORû ûWHICHûWASûBASEDû
on a US$55 per barrel price estimate for
WTI crude.
For a US$5 drop below its estimate,
#ONTINENTALûSAIDûFREEûCASHmOWûWOULDû
decline by US$300m, and the oil price
sliding well below that level raises
concerns for bond investors.
Triple C rated CHESAPEAKE disappointed
investors with lower-than-expected oil
production forecasts for next year,
although it told investors it had liquidity of
US$1.4bn, enough to retire its 2020 and
2021 debt maturities.
Its 8% 2025 notes dropped more than
seven points to trade at 36.80.
For an energy sector already under
pressure, the latest slump in commodity
prices has piled on more worries about
companies facing large amounts of
maturing debt.“The energy complex was weak to begin
with,” said Temple.
Even before this latest drop in the market
there were worries about how some
companies would be able to handle
upcoming maturity walls, he said.
“It seems some of those situations are
going to get accelerated.”HIGH-YIELD FUNDS POST RECORD
OUTFLOWSHigh-yield exchange traded funds suffered
53BNûOFûOUTmOWSûINûTHEûlVEûDAYSû
through to Thursday last week, the most on
record for that time period, according to
Deutsche Bank researchers.
/UTmOWSûONû7EDNESDAYûALONEûTOTALLEDû
US$1.94bn, again a record, according to the bank.
4HEûHEAVYûFUNDûOUTmOWSûWEREûSEENûASûTHEû
main driver of the spread widening seen in the
high-yield market last week, as the ETFs are
forced to sell their underlying bonds to meet
redemptions, which pushes prices down.
Average spreads were pushed 61bp wider
from February 21 to 427bp as of Wednesday.
So far, managed accounts have not
reported similar levels of selling activity.
There are some concerns that any selling
from managed accounts would further
EXACERBATEûTHEûOUTmOWSûFROMû%4&Sû
ûGIVENû
many institutional high-yield investors also
hold liquid ETF positions, which would
LIKELYûBEûlRSTûTOûBEûSOLD
h!ûSUSTAINEDûPERIODûOFûSIGNIlCANTû
OUTmOWSûCOULDûCLEARLYûBEûAûMUCHûBIGGERû
problem for market liquidity,” wrote the
Deutsche Bank analysts.
“Our long-held view is that the next
downturn is likely to be characterised by
greater liquidity issues as opposed to
SIGNIlCANTLYûHIGHERûDEFAULTSvMALLINCKRODT BONDS SOAR ON
SETTLEMENT, LM PLANSMALLINCKRODT bonds soared last week on news
THATûTHEûPHARMACEUTICALSûlRMûHADûAGREEDûTOû
a US$1.6bn payment to settle opioid-related
lawsuits globally and that it would carry out
liability management operations to attend to
short-term maturities.
The company’s 5.75% 2022s were trading
at around 84 cents on the dollar on Tuesday,
up more than 25 points since Monday’s
close, only to fall back to 77.50 by Thursday,
according to MarketAxess data.
It was a similar story for its 5.625% 2023s,
which changed hands as high as 70 on
Tuesday before dropping back to 65, still up
more than 16 points on the day. By Thursday,
the bonds had fallen back to 60.75.
“The court-supervised process is expected to
PROVIDEûAûFAIR ûORDERLY ûEFlCIENTûANDûLEGALLYû
binding mechanism to resolve all opioid-relatedclaims against the company,” Mallinckrodt said
in a statement released on Tuesday.
The company also said it had entered into
a support agreement with creditors,
including an exchange offer for its
outstanding 2022s.
Certain holders of the 2022s have agreed
to a par-for-par exchange for a new 10%
second lien note due April 2025, it said.
If that exchange is not fully subscribed,
noteholders have also agreed to swap the
5.625% 2023s for the 2025s at 90 cents for
every dollar of the 2023s.
The company is also issuing a new US$500m
four-year term loan, whose proceeds would be
used to pay down the company’s 4.875% 2020s,
repay loans and terminate commitments on a
revolving credit facility.
The amendments to the existing credit
agreement would result in certain changes to
the covenants, a rate increase of 100bp for
existing term loans, and an increase in
amortisation on the existing term loans, it said.
The company carried out an exchange for
the 2020s last year but failed to reduce much
of the outstanding amount. The transaction
resulted in a US$384m reduction in gross
debt and left US$615m of the 2020s
outstanding, according to an earlier report
BYûRESEARCHûlRMû#REDIT3IGHTSû
“We believe the proposed settlement and
capital restructuring activities will provide us
with a clear path forward to achieving our
long term strategy,” said CEO Mark Trudeau.EUROPE/MIDDLE EAST/
AFRICAFUGRO PULLS BOND DEALMarine survey company FUGRO has pulled a
debut €500m bond deal after coronavirus
fears roiled markets last week.
The company said on Friday that it would
not go ahead with the senior secured
offering because of “adverse market
conditions”.International Financing Review February 29 2020 35BONDS HIGH-YIELDALL COVERED BONDS (ALL CURRENCIES)
BOOKRUNNERS: 1/1/2020 TO DATE
Managing No of Total Share
bank or group issues US$(m) (%)Source: Refinitiv SDC code: J15a1 Barclays 25 5,525.64 8.7
2 HSBC 19 4,483.70 7.1
3 BNP Paribas 12 2,941.52 4.7
4 UniCredit 16 2,888.15 4.6
5 Credit Agricole 12 2,753.74 4.4
6 Credit Suisse 10 2,554.33 4.0
7 ING 11 2,503.25 4.0
8 Natixis 12 2,376.84 3.8
9 DZ Bank 15 2,371.71 3.8
10 Commerzbank 10 2,301.23 3.6
Total 71 63,240.096 IFR Bonds 2322 p 25 - 43 .indd 35 28 / 02 / 2020 19 : 15 : 32