Calpine notes flat; U.S. Steel drops; Rite Aid gains; primary quiet

By Abigail W. Adams

Portland, Me., Dec. 20 – After an active week with several surprise drive-by deals, the domestic high-yield primary market was quiet on Friday with sources expecting it to remain closed until the new year.

The secondary space was equally quiet on Friday with few notable movers in the space, a market source said.

After grinding tighter throughout the week, the market was ending the week largely flat.

Calpine Corp.’s newly priced 5 1/8% senior notes due 2028 were the most actively traded issue of the day although the notes were hovering around their issue price.

U.S. Steel Corp.’s 6 ¼% senior notes due 2026 were the major losers of Friday’s session with the notes down in active trading after the company slashed its fourth-quarter guidance, announced a dividend cut, a plant closure and a wave of layoffs.

Rite Aid’s junk bonds continued to gain on the heels of a surprise earnings beat and a ratings upgrade of its longer duration bonds.

Calpine flat

Calpine’s newly priced 5 1/8% senior notes due 2028 dominated activity on an otherwise quiet day in the secondary space, market sources said.

The notes were largely hovering around par.

The market for the notes was par bid, par 3/8 offered, sources said. They were seen changing hands at par 1/8.

The notes were little changed since breaking when they were marked at par bid, par ½ offered with most prints around par.

The lack of movement in the notes may be the result of end-of-the-year illiquidity, a market source said.

The deal was driven to the market by about $500 million in reverse inquiry.

Holders may have been happy with their allocations and holding onto them, the source said.

Calpine priced an upsized $1.4 billion issue of the 5 1/8% unsecured notes at par in a Thursday drive-by, one week after pricing a $1.25 billion issue of 4½% secured notes due 2028.

The 5 1/8% notes priced in the middle of the 5% to 5¼% yield talk.

The deal was upsized from $1.25 billion. However, the Houston-based power generator attempted to upsize the deal to $1.9 billion but ultimately downsized to $1.4 billion.

The previous week’s 4½% notes remained active in the secondary space on Friday. However, they were little changed and continued to trade around par ¾, a market source said.

U.S. Steel drops

U.S. Steel’s 6¼% senior notes due 2026 were among the few issues to see significant movement on Friday.

And those bonds were moving south.

The 6¼% notes sank more than 3 points, a market source said. They traded down to 88 after closing out Thursday on a 91 handle.

U.S. Steel’s capital structure was under pressure on Friday after the Pittsburgh-based steel producer slashed its fourth-quarter guidance, cut its dividend, and announced a mill closure and a wave of layoffs.

The steelmaker said it expects to report a fourth-quarter loss of $1.15 a share versus analyst expectations for a loss of 62 cents.

The company also said that it would reduce its quarterly dividend to one cent from 5 cents and that it would suspend its operations at a Michigan plant which may involve laying off up to 1,545 workers.

The company cited declining selling prices, higher scrap costs and a flood at one of the company’s facilities for its financial performance, according to a company news release.

While President Trump’s steel and aluminum tariffs were meant to revitalize the domestic industry, domestic steelmakers continue to struggle.

Rite Aid gains continue

Rite Aid’s junk bonds continued to post gains on Friday following a surprise earnings beat and a rating upgrade of its longer duration notes.

The 6 1/8% senior notes due 2023 rose 1 point to close Friday at 89, according to a market source.

The notes jumped 3 points on Thursday.

While volume was light, Rite Aid’s 7.7% senior notes due 2027 traded up to close Friday at 75.

Rite Aid’s junk bonds were gaining strength on the heels of a surprise earnings beat.

S&P also raised the rating of Rite Aid’s unsecured 2027 and 2028 notes to CCC- from D due to its completed tender offer. (See related article in this issue.)

Rite Aid completed a tender for up to $100 million of its $270 million outstanding 7.7% notes due 2027 and for $68 million of its 6 7/8% notes due 2028.

Rite Aid was able to repurchase $156 million of its 2027 and 2028 debt in the third quarter for a purchase price of $100 million, Prospect News reported.

The drugstore chain has approximately $3.3 billion of debt but no maturities until 2023.

Indexes

Indexes were again mixed on Friday with some largely flat while others continued to gain. However, all posted cumulative gains on the week.

The KDP High Yield Daily index slid 1 basis point to close Friday at 71.71 with the yield now 4.82%.

The index rose 7 bps on Thursday, 14 bps on Wednesday, 7 bps on Tuesday and 9 bps on Monday for a cumulative gain of 36 bps on the week.

The ICE BofAML US High Yield index rose 3.3 bps with year-to-date returns now 14.227%. The index was up 3.8 bps on Thursday, 24.3 bps on Wednesday, when returns shot past 14%, 23.2 bps on Tuesday and 23.1 bps on Monday.

The index saw a cumulative gain of 77.7 bps on the week.

The CDX High Yield 30 index rose 10 bps to close Friday at 109.52.

The index was flat on Thursday, rose 12 bps on Wednesday, 4 bps on Tuesday and 30 bps on Monday for a cumulative gain of 56 bps on the week.

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