Delta Air Lines joined the high yield bond party amid a challenging environment with less travel due to the coronavirus pandemic. The move comes after S&P downgraded Delta debt two notches to BB from BBB-, while Fitch assigned the new bond a BB+ rating.
Despite the downgrade, some market analysts aren’t worried.
“Delta is so well run as an airline it is hard to imagine it can’t manage its way through this,” said Scott Kimball, senior portfolio manager at BMO Global Asset Management.
“Airlines are a systematically important part of the US economy and the big ones have big lifelines. Delta is in the top in terms of its financial profile and they are stronger than their competitors.”
Delta joins other companies offering high yield bonds, such as Netflix. The videoconferencing company issued $1 billion in dollar-denominated and euro bonds, which was met with record demand.
Per a Bloomberg report, demand was at such a high level “with orders at about ten times the offering size, that Netflix was able to reduce yields on both portions on Thursday from earlier discussions, according to people familiar with the matter. It sold $500 million of bonds at a 3.625% yield, among the lowest ever seen in the U.S. high-yield bond market and in line with prices typically offered on investment-grade bonds. The 470 million euro ($507 million) portion priced at 3%.”
The video streaming company might be cash-strapped now with no positive cash flow just yet, but it makes sense to issue bonds at the present time while global yields are at record lows.
“Given the outlook for many high-yield issuers is so uncertain in response to the pandemic, Netflix may offer a much higher level of certainty in future performance given its business model,” said Bloomberg Intelligence analyst Stephen Flynn.
High Yield Bond ETF Options
Investors looking to add high yield bond exposure to their ETF portfolios can look at the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Bloomberg Barclays High Yield Bond ETF (JNK). Some market experts question whether this move is nothing more than a small bandage on a gunshot wound.
Investors contemplating a high yield option can take a look at the Goldman Sachs Access High Yield Corporate Bond ETF (GHYB). GHYB seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FTSE Goldman Sachs High Yield Corporate Bond Index.
The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of high yield corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.
For more market trends, visit ETF Trends.