Frontier’s new deal stays busy, ends softer; California Resources, Teck Resources downgraded

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Sept. 15 – The secondary high-yield bond market remained a touch weak in Tuesday trading, even pressuring recent issues.

Frontier Communications Corp. “continued to be the driving force” of the market, a trader said. But while the three-tranche $6.6 billion issue from Friday pushed up on Monday, it came in on Tuesday.

Away from recently priced deals, rating downgrades were pressuring a couple of names. Moody’s Investors Service, in part because of weak oil prices, cut California Resources Corp. on Tuesday. Moody’s also dropped its ratings on Teck Resources Ltd. on Monday, which resulted in lower trades come Tuesday.

In terms of the latter name, the new rating pushed the company into junk status.

Olin kicks off $1.5 billion

No deals were priced in the new issue market on Tuesday.

Olin Corp. began a roadshow on Tuesday for a $1.5 billion two-part offering of senior notes (expected ratings Ba1/BB+).

The acquisition-financing deal, in the market via issuing entity Blue Cube Spinco Inc., is expected to price on Sept. 22 and includes eight-year notes and five-year notes. Tranche sizes remain to be determined.

J.P. Morgan Securities LLC, Wells Fargo Securities LLC, Barclays, Goldman Sachs & Co., BofA Merrill Lynch, Citigroup Global Markets Inc. and PNC Capital Markets are the joint bookrunners.

SunOpta announces deal

SunOpta Foods Inc., a subsidiary of SunOpta Inc., plans to sell $330 million of senior secured second-lien notes due 2022, according to a Tuesday press release.

The deal is expected to kick off next week, according to a market source.

The Toronto-based company focused on organic, non-GMO and specialty foods plans to use the proceeds, together with the proceeds from a common share offering, borrowings under its existing credit facilities and cash on hand, to fund the acquisition of Sunrise Holdings (Delaware), Inc., a supplier of private-label domestic and imported conventional and organic frozen fruit, from an investor group led by affiliates of Paine & Partners LLC.

Pick-up expected

Rosh Hashanah and pending announcements from the central bank have muted activity in the new issue market, sources said on Tuesday.

However, the dollar-denominated market could pick up in the week ahead, a syndicate banker said.

There are also possible new deal announcements in the European market that could come as early as the late part of this week, according to a London-based debt capital markets banker.

Frontier gives up gains

High-yield investors continued to focus on Frontier Communications’ recently priced $6.6 billion three-part deal on Tuesday.

However, there was “quite a bit of pressure on all of them,” a trader said, including older issues.

“All [saw] lots of volume,” he added.

The trader remarked that there were “tons of trades over 100” in the $3.6 billion of 11% notes due 2025, which ended about half a point lower at par 5/8.

The trader said the $1 billion of 8 7/8% notes due 2020 also fell half a point, ending at par 7/8. The $2 billion of 10½% notes due 2022 closed down nearly a point at par 7/8.

In the company’s older issues, the trader said the 6 7/8% notes due 2025 weakened over a point to 83¼.

A second trader said Frontier’s new issues were “very active” and “a touch weaker,” seeing the 11% notes trade “off almost a point, touching as low as par.”

The new deal came Friday via JPMorgan, BofA Merrill Lynch and Citigroup.

Proceeds will be used to help fund the acquisition of Verizon’s wireline operations in California, Florida and Texas. The proceeds will be escrowed until the close of that acquisition, which is expected in late March.

Other financing for the $10.54 billion transaction will come in the form of a $1.5 billion delayed-draw term loan, the inclusion of which resulted in a reduction of the size of the bond portion, which was originally contemplated at about $8 billion. In addition, the financing includes proceeds from a $750 million sale of common shares with a $75 million greenshoe and $1.75 billion of 11 1/8% convertible preferred shares with a $175 million greenshoe.

Frontier Communications is a Stamford, Conn.-based provider of rural telecommunications services.

CalRes, Teck downgraded

California Resources had its corporate family rating and senior unsecured notes cut by Moody’s on Tuesday due to dwindling financial performance amid the weak commodity price environment.

As such, a trader said the 6% notes due 2024 fell “almost 2 points” to 69 1/8.

A second trader said the debt was “down 3 to 4 points after the downgrade, trading in the high 60s.”

CalRes’ overall rating was dropped to B1 from Ba2, and the senior unsecured notes were cut to B2 from Ba2.

Among other downgrades, Teck Resources was lowered to junk status on Monday by Moody’s. Come Tuesday, the bonds were feeling it.

A trader said the 4½% notes due 2021 lost 3 points, closing at 80½.

Moody’s cut the Vancouver, B.C.-based metals and mining company to Ba1 from Baa3, citing softer pricing in the metals markets.

Evan Mann, an analyst with Gimme Credit LLC, said in a comment published Tuesday that the downgrade was not a big surprise, although the timing did come sooner than expected.

Mann noted that Standard & Poor’s and Fitch Ratings still rank the company as investment grade, though both have negative outlooks and are expected to follow Moody’s path in the near to intermediate term.

Mann also said that spreads on the 3¾% notes due 2023 have widened by 40 basis points in the last week. Should S&P and Fitch elect to cut their ratings, spreads could widen further, he wrote.

Energy XXI loses ground

Energy XXI bonds were down a fair bit Tuesday, with one trader attributing the decline to the company’s latest reserve update report.

The trader said the 11% notes due 2020 were “down a few points” at 59. A second trader also placed the issue at 59, off 6 points “from the end of last week.”

The trader also noted that the paper was “very active.”

The Houston-based oil and gas company said late Monday that its proved reserves at the end of fiscal 2015 were lower than the previous year, at 75%. The company attributed the dip to the year’s production as well as non-core asset sales, price-based adjustments and a reduced capital expenditure program.

Last week, Energy XXI announced that it was delaying filing its latest 10-K as it needed to restate financials for the last four years. The restatement is due to changes in derivative accounting.

Market readings mixed

Market indicators were mixed Tuesday, ending unchanged to lower on the day.

The KDP High Yield Daily index faded to 68.24 from 68.25.

The CDX North American Series 24 High Yield index, however, was deemed unchanged by a market source who quoted the index at 104.65 bid, 104.75 offered.

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