SS&C prices upsized deal; Greece, Puerto Rico weigh; CalRes falls again; coal up on EPA ruling

By Paul A. Harris and Stephanie N. Rotondo

Phoenix, June 29 – The secondary high-yield bond market was coming in with the broader markets on Monday as the stage was set for a Greek default.

Debt talks between the Mediterranean nation and the European Union fell apart over the weekend. Greek prime minister Alexis Tsipras called for a referendum vote on July 5, closed banks for the week and limited cash machine withdrawals as Tuesday’s deadline fast approaches.

Though the talks failed to bring about any deal this weekend, several European leaders, including German chancellor Angela Merkel, indicated that they were still open to negotiations.

Greece has a €1.6 billion payment due to the International Monetary Fund on Tuesday, the same day the terms of its E.U. bailout expire. If the country fails to pay, it will constitute a default and could result in an E.U. exit.

Meanwhile, news out of China was also weighing on the markets, as the country cut interest rates over the weekend in order to outweigh a huge stock market loss on Friday.

One other big story of the day was Puerto Rico. Over the weekend, the U.S. territory’s governor, Alejandra Garcia Padilla, said the island is unable to repay debt to the tune of $72 billion. That news sent the territory’s benchmark bonds – the 8% notes due 2035 – down into the high-60s from the high-70s, a trader reported.

Of the day’s dealings, California Resources Corp.’s bonds “continued their slide,” according to a trader. The debt began to drift down on Friday, after a well-known short-seller deemed the company’s stock as worthless and said a debt restructuring was needed.

However, the coal sector was getting a boost after the Supreme Court ruled that the Environmental Protection Agency needed to take financial implications into account when handing down new emissions rules.

SS&C upsizes

Amid volatility in the global financial markets, the high-yield primary market cleared a single deal on Monday.

SS&C Technologies Holdings Inc. priced an upsized $600 million issue of eight-year senior notes (B3/B+) at par to yield 5 7/8% on Monday, according to a syndicate source.

The deal was increased from $500 million.

The yield printed in the middle of the 5¾% to 6% yield talk.

That final talk tightened from earlier guidance of 6% to 6¼%, according to a trader, who added that SS&C’s paper played to good demand, with a book said to contain $3 billion to $3.5 billion of orders.

Morgan Stanley, Deutsche Bank and BofA Merrill Lynch were the joint bookrunners for the acquisition financing.

Petroceltic plans deal

There was one new deal announcement on Monday.

Petroceltic International plc is presently marketing up to $175 million of three-year senior secured callable bonds, according to a source from the debt capital markets group at Pareto Securities in Oslo, the sole bookrunner for the deal.

The source declined to furnish any further details about the marketing schedule, or other structural details about the bonds.

Elsewhere the forward calendar carried over four deals from last week – ranging in size from $180 million to $485 million – that might clear before the market closes on Thursday ahead of the three-day Independence Day holiday in the United States.

StandardAero is marketing $485 million of eight-year senior notes (Caa2/CCC) via Jefferies. Early guidance has that deal coming together in the high 8% to 9% area context.

Georgia Renewable Power, Inc. is selling $225 million first-lien senior secured notes due 2022 (Ba3) via Seaport Global.

My Alarm Center, LLC is selling $265 million senior secured notes due 2020 (B3) via Imperial Capital.

And Globo plc is in the market with $180 million of five-year senior secured notes (B2), also via Imperial Capital.

Those deals notwithstanding it could be a quiet pre-Fourth of July week in the new issue market, sources say.

Due to volatility in the global financial markets a roadshow announcement ahead of the holiday is unlikely, a syndicate banker said, adding that it would be courting risk to have a deal in the market over the extended holiday weekend.

Outflows

Cash flows for the dedicated high-yield funds were negative on Friday, according to a portfolio manager.

High yield ETFs sustained $443 million of outflows on Friday.

Actively managed funds saw $10 million of outflows.

Look for ETFs to post even greater outflows when Monday’s numbers become available on Tuesday, warned a trader who closely tracks the activities of the high yield ETFs.

There was a huge amount of selling on the part of the ETFs on Monday, the trader remarked, adding that among the prominent high-yield ETFs JNK was down 28 cents, or 0.73%, and HYG was down 61 cents, or 0.69%, on Monday.

CalRes in retreat

California Resources debt remained under pressure on Monday, following a negative report put out by short-seller BlueMountain Capital Management LLC on Friday.

A trader said the 6% notes due 2024 – part of a $5 billion three-tranche issue that priced on Sept. 11 – slid another 1¼ points to 86¼.

The paper had dipped about 3 to 4 points on Friday.

A second market source quoted the 6% notes at 85¾ bid, 88 offered.

“CalRes was down again,” another trader said, seeing the 6% noes trade around 86½.

In its report – which was published Thursday – BlueMoutain said California Resources was dealing with high overhead and shrinking output. As such, there is not enough to cover the company’s debt obligations, the firm said.

“We believe that the company’s common stock is worthless and that its bonds are worth around 23 cents on the dollar taking into account coupons and ultimate recovery upon default,” BlueMountain said in the report.

So far this year, California Resources has cut its capital expenditure budget by 80% and closed almost 90% of its drilling rigs as oil prices declined.

On March 25, company executives at the Scotia Howard Weil 43rd Annual Energy Conference in New Orleans said that a review of options was underway as the company looked to joint ventures and asset monetizations.

Those remarks came just days after Moody’s Investors Service downgraded the company to Ba2 from Ba1, citing high leverage and a drop in oil prices.

As of the end of 2014, California Resources had about $6.4 billion in debt.

Coal up on EPA ruling

The Supreme Court ruled Monday that the EPA needed to take financial impacts to a company into account when laying down new regulations that seek to limit emissions of harmful toxins.

The coal sector in particular was upset by the new regulations, which industry groups estimated would cost $9.6 billion per year for companies to remain in compliance. Those groups also projected that it would save only $6 million per year in public health and environmental benefits.

The EPA, for its part, has said that the benefits would be in the billions of dollars.

Despite the ruling, the new rules – written as part of the Clean Air Act – will not be disposed of completely. Instead, the EPA will need to review the rules, taking into account the financial impact of compliance, and rewrite them for final approval.

But the news was seen as boding well for coal names such as Peabody Energy Corp. and Alpha Natural Resources Inc.

One trader saw Peabody’s 6% notes due 2018 rising over a point to 50¾, while the 10% notes due 2022 put on half a point to 63¼.

However another market source deemed the 6½% notes due 2020 off 1½ points at 35½ bid. That same source called Alpha Natural’s 6¼% notes due 2021 nearly 2 points higher at 8½ bid.

The news also gave coal stocks quite a leg up.

“The stocks had more of a rebound than the bonds,” one trader said.

Peabody stock (NYSE: BTU) improved by 22 cents, or 9.61%, to $2.51. Alpha’s equity (NYSE: ANR) put on 2.76 cents, or 8.59%, to 34.9 cents.

Market heads south

Market indicators were negative in Monday trading as concerns about Greece weighed heavily across the board.

The KDP High Yield index fell to 70.32 from 70.52 on Friday. Yields widened to 5.73% from 5.65%.

As for the CDX North American Series 24 index, it weakened over a point to 105.73 bid, 105.77 offered, according to a market source.

Sheri Kasprzak contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.