Morning Commentary: CNX on deck; Thursday deals give mixed performances; Digicel dives

By Paul A. Harris

Portland, Ore., March 1 – Mounting leverage announced Thursday by Jamaica-based telecom Digicel Group sparked a general retreat in the prices of its junk bonds, sources said on Friday.

Characterizing the telecom’s capital structure as “complicated,” an investor said on Friday morning the markdown ranged from 2 points to 8 points along that structure.

The Digicel Group 8¼% senior notes due September 2020 were marked at 32½ on Friday, down from 36 on Thursday.

The 9 1/8% senior cash pay/PIK notes due 2024 were marked at 29½, down 2 to 2½ points on the Friday after being down 9 points on Thursday, the investor said.

The company, which underwent restructuring at the beginning of the year, told its bondholders on Wednesday that, amid declining earnings in the most recent quarter its net debt was 6.8-times EBITDA at the end of 2018, the investor said.

Digicel is expected to show up in the primary market in the week ahead, according to the investor, who added that the company will seek to address a bank loan maturity by issuing new secured bonds, perhaps $550 million or more, depending upon demand.

Citigroup is expected to lead that deal, the source added.

Thursday’s deals

The primary market burst to life on Thursday after a generally quiet start to the February-March crossover week, owing to the massive amount of the market’s attention commandeered by the JPMorgan Global High Yield & Leveraged Finance Conference in Miami, which took place from Monday to Wednesday.

Headlining the Thursday session – the second-biggest day in the primary market thus far in 2018 – was Bombardier Inc., which priced a twice upsized $2 billion issue of 7 7/8% senior notes due April 2027 (Caa1/B-) at 99.246 to yield 8%.

The new Bombardier paper was 101 1/8 bid, 101 3/8 offered on Friday morning, the investor said.

The issue size increased from $1.75 billion after earlier increasing from $1 billion.

The yield printed in the middle of yield talk in the 8% area. Initial talk was 8% to 8¼%.

It played to an order book in the high $3 billion range, according to a trader.

Community Health Systems raised $1.58 billion of proceeds via the placement of an issue of 8% senior secured notes due March 15, 2026 (Caa1/B-/B), which priced at 98.683 to yield 8¼% on Thursday.

Those bonds were slightly below new issue price on Friday at 98 1/8 bid, 98 5/8 offered, sources said.

The deal played to $2.5 billion of orders, with the yield printing at the wide end of the 8% to 8¼% revised yield talk. Earlier talk was 7 7/8% to 8%. Initial guidance was in the 8% area.

The new Carter's, Inc. 5 5/8% senior notes due 2027 (Ba2/BB+) were 101¾ bid, 102 offered on Friday morning.

The $500 million issue priced at par on Thursday, playing to $3.5 billion of orders, the investor said.

The Summit Materials, Inc. 6½% senior notes due March 2027 (B3/BB) were par 5/8 bid on Friday morning after going out Thursday at par ½ bid.

The $300 million issue priced at par.

CNX on deck

In another deal launched into the market as a Thursday drive-by, but subsequently held in the market overnight, CNX Resources Corp. set wide-to-guidance price talk on its $500 million offering of eight-year senior notes (B3/BB-) at 7½% to 7¾% on Friday and expects to price the deal later in the day.

It was initially guided in the mid-to-high 6% area, sources say.

MUFG is the lead.

However, Credit Suisse initially shopped the deal with investors and was subsequently outbid by MUFG, sources say.

CNX Resources shelved a $500 million offering of eight-year senior notes just under a year ago.

That deal had been in the market with yield talk in the 6½% area, with Credit Suisse on the left.

Mixed Thursday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Thursday, according to the investor.

High-yield ETFs sustained $23 million of outflows on the day.

However, asset managers saw $55 million of inflows on Thursday.

News of Thursday’s daily flows follows a report that the combined high-yield funds saw $698 million of net inflows on the week to Wednesday’s close, according to a Thursday afternoon report from Lipper US Fund Flows.

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