LONDON, Sept 29 (IFR) - Bonds from some of the largest European high-yield issuers have tumbled in value this week, with market participants warning that it could precede a broader sell-off in the asset class.
Cornerstones of the high-yield benchmark such as cable companies Altice SA and Unitymedia have been under pressure, with the former’s 2.825bn of euro holdco bonds plunging to record low cash prices on Tuesday.
“All the things that have really traded down are consensus longs,” said an investor. “Liquidity is really thin and you’ve got to ask who is the marginal buyer if the market’s already long?”
A second investor said that banks are not bidding risk at the moment, which would usually put a floor on the price action.
European high-yield is no stranger to plummeting bond prices, with Phones 4U’s collapse in September 2014 triggering a crisis of confidence in the debt of many European companies.
However, the pressure then was focused on small illiquid bonds at the bottom of the ratings spectrum.
“What’s different this time is that it’s the really large cap liquid paper that’s getting hit,” said a senior leveraged finance banker.
“The situations that had taken pain before were largely esoteric deals for small companies, which real money investors had transitioned out of when the crunch came. But now some of the most widely held bonds are getting slammed.”
The first investor said he was concerned that where the big high-yield names lead, others could follow.
“If you’ve got outflows, you can at least get some liquidity in the large cap stuff, whereas in the smaller names there can be literally no liquidity,” he said. “So they might notionally hold up at first, but then have an even bigger puke when someone actually tries to trade out.”
While inflows have turned positive in European high-yield in the past two weeks, they are still relatively modest, with JP Morgan’s tracked funds registering a small 25m inflow in the week ended September 23.
So far, specific news events have been behind the market moves and it has been easy to pinpoint the reasons for the sell-off.
For example, Liberty Global’s cable firms Virgin Media and Unitymedia bore the brunt of Monday’s pain after Vodafone announced talks over asset swaps had fallen apart.
Virgin Media’s 460m 4.5% 2025 senior notes fell 4.5 points to a 92.20 cash price bid on Monday, according to Tradeweb, while Unitymedia’s 700m 3.75% 2027 senior plummeted six points to 83.70.
The second investor said that the price action was overdone but was not that surprising as it came on “the perfect day for bad news”.
Altice has been in the crosshairs since the US dollar bonds backing its acquisition of Cablevision priced wide of expectations on Friday as sentiment in the US market also took a turn for the worse.
The size of the deal was scaled back by US$1.5bn to US$4.8bn with the largest tranche pricing at a massive 10.875% yield.
In Europe, Altice SA’s 750m 6.25% 2025 bond has tanked seven points this week, bid at a cash price of just 87 on Tuesday morning. The deal was issued at par in January.
This is despite the fact that Cablevision will not be a subsidiary of Altice SA but will ultimately be owned by the group’s new Dutch parent company, Altice NV.
In contrast, the cable firm’s last US acquisition - Suddenlink - became a subsidiary of Altice SA.
Negative news from the US also saw Valeant’s large 1.5bn 4.5% 2023 bond crater in nearly 10 points to a cash price bid of 84.80 on Tuesday morning. The drugmaker issued the deal at par in March, which was the Canadian’s firms first bond in euros.
The notes were hit hard after US Democratic lawmakers on Monday attacked “massive” price increases of two heart drugs by Valeant, fuelling an equity rout on worries of a government and insurer clampdown on US drug prices. (Reporting by Robert Smith; Editing by Philip Wright)