California Resources active but flat; Diebold gains continue; First Quantum, Digicel drop

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 29 – With the domestic high-yield primary market expected to remain dormant until the end of the week, trading volume in the secondary space remained “dead,” sources said.

Already light on Wednesday, volume is expected to continue to taper down even further into the final days of the week ahead of the long Labor Day weekend, sources said.

Although largely trading sideways, California Resources Corp.’s 8% senior secured second-lien notes due December 2022 were once again the most active issue in the secondary space as oil futures marked their highest finish of the month.

Diebold Inc.’s struggling 8½% senior notes due 2024 remained in focus with the notes gaining another point as the company negotiated an amendment to its credit agreement to allow for a new term loan.

Digicel Group’s junk bonds were losing ground in active trading with the notes down 3 points to 3½ points after the company’s chief financial officer resigned in the wake of the company’s second-quarter earnings announcement.

First Quantum Minerals Ltd.’s 6 7/8% senior notes due 2026 were also among the volume leaders on Wednesday and were trading down about 1¼ point as U.S.-Canada NAFTA negotiations approach the Friday deadline.

September dreaming

The major currencies new issue market was dormant and expected to remain so until the Labor Day weekend concludes on Sept. 4, whereupon a substantial pipeline of deals is expected to begin coming to market.

Syndicate bankers continue to project September new issue volume around $25 billion.

September might see an early ramp-up, a syndicate banker said on Tuesday. However, the likelihood is that the primary market won’t be running full bore until the Sept. 10 week.

The Nordic new issue market remains open, heading into summer’s end.

Ship Finance International Ltd. was scheduled to begin a series of meetings with fixed-income investors on Tuesday ahead of an expected five-year NOK-denominated senior bond.

California Resources active

With trading volume thin in the secondary space, California Resources’ 8% senior notes due 2022 were again the volume leader with $16.8 million on the tape.

While active, the notes were trading largely flat, a market source said. They were quoted at 89¾ bid, 90¼ offered and were trading around 90¼, source said.

While the 8% notes saw little gain on Wednesday, they are up 1 point to 1¼ points on the week.

Meanwhile, oil futures reached their highest point in August on Wednesday. The barrel price of West Texas intermediate crude oil for October delivery settled at $69.51, an increase of 98 cents, or 1.4%.

The rise follows the Energy Information Administration’s report that inventories dropped by 2.6 million barrels last week, more than double what analysts had anticipated.

Diebold gains again

Diebold’s 8½% senior notes due 2024 continued to gain in active trading on Wednesday as the embattled ATM company works to secure an amendment to its credit agreement.

On Wednesday, the 8½% notes were up 1 point to trade around 71, a market source said.

The company was expected to meet with its principal lenders on Wednesday to secure an amendment to its credit agreement to allow for a new term loan.

However, there was no news related to the agreement on Wednesday, a market source said.

The notes have risen about 6 points over the past week after the company announced it had secured a $650 million financing commitment from two institutional investors, which it is expected to receive through a term loan.

The 8½% notes had been in free fall after the company reported second-quarter earnings in early August. Prior to the earnings report, the notes were trading around 92.

While the notes traded as low as 55 post earnings, they also improved earlier in the month after the company announced it had hired Credit Suisse and Evercore as financial advisers to explore a sale.

Digicel underperforms

Digicel’s junk bonds were the underperformers of Wednesday’s session with the notes down 3 points to 3½ points, a market source said.

The Bermuda-based mobile phone network provider’s 7 1/8% senior notes due 2022 were down 3½ points to 57½ with more than $13 million of the bonds traded.

The company’s 6% notes due 2021 were down 3¼ points to 90¼ with $12 million bonds changing hands late in the afternoon.

The 8¼% senior notes due 2020 were down 3 5/8 points to 66 7/8 with about $7 million on the tape.

The 6¾% senior notes due 2023 were down 3½ points to 81 7/8 and also saw about $7 million of the bonds change hands.

The bonds were dropping after news broke the company’s chief financial officer resigned after one year on the job.

The resignation comes in the wake of disappointing second-quarter earnings, the Irish Times reported.

The company’s leverage edged slightly higher to 6.75 times EBITDA in June, despite a deleveraging target of 5.7 times EBITDA by March 2019.

First Quantum down

First Quantum’s 6 7/8% senior notes due 2026 were also down in active trading on Wednesday as NAFTA negotiations between the United States and Canada entered into the final stretch before the Friday deadline.

The notes from the Vancouver, B.C.-based mining company dropped about 1¼ points. They were seen trading between 95 and 95½ with more than $15 million of the bonds on the tape.

Tuesday inflows

The daily cash flows of dedicated high-yield bond funds were mixed on Tuesday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs sustained $82 million of outflows on the day.

However actively managed funds saw $65 million of inflows on Tuesday, the trader added.

With one more session’s flow data pending in the current weekly reporting period, the dedicated junk funds are tracking $249 million of net inflows to Tuesday’s close, the source said.

Indexes mixed

Three benchmarks for the high-yield secondary market were again mixed on Wednesday.

Just as on Tuesday, one index remained flat, one was up slightly and another dropped after all saw a strong start to the week.

The KDP High Yield Daily index was again flat on Wednesday at 70.54 with the yield continuing to be 5.78%. The index was up 6 basis points on Monday and gained 9 bps last week.

The Merrill Lynch High Yield index’s climb continued on Wednesday. The index was up 1.8 bps on Wednesday with the year-to-date return now 1.993%. The index was up 1.9 bps on Tuesday and 9.8 bps on Monday.

The index is now just shy of a 2% year-to-date return.

The index has seen a solid upward momentum since it crossed into the black on July 6 after a long stretch in the red.

The CDX High Yield 30 index saw another day of losses after a large gain on Monday.

The index was down 7 bps to close Wednesday at 107.08. It was down 2 bps on Tuesday after rising 18 bps on Monday. The index saw a 27 bps gain last week.

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