Morning Commentary: Asset sale news lifts Rayonier bonds; funds see Friday outflows

By Paul A. Harris

Portland, Ore., Oct. 16 – News that Rayonier Advanced Materials Inc. is pondering a potential asset sale, with an eye to repaying debt and decreasing leverage, sparked an improvement in its bond prices on Monday morning, according to a trader in New York.

The Rayonier A.M. Products Inc. 7 5/8% senior secured notes due January 2026 changed hands on the morning at 85½, up 2 points, the source said.

Rayonier, a Florida-based chemical company that specializes in cellulose-based products, announced in a Monday press release that it has engaged Houlihan Lokey as its financial adviser to explore the potential sale of its paperboard and high-yield pulp assets located at its Temiscaming site.

The strategic move is aligned with the company’s “commitment to enhancing its operational and financial performance, optimizing its portfolio to align with its long-term growth strategy, and providing flexibility to pay down debt and reduce leverage,” Rayonier said in the release.

Away from that situation junk bonds started the week unchanged, but were a touch lower at mid-morning, the trader said, noting that trading volume was low.

The Newfold Digital Holdings Group, Inc. 11¾% senior secured notes due October 2028 (B2/B/BB-) were lower on the morning at par ½ bid, 101 offered, the source said, adding that the paper was 101½ bid, 101¾ offered at the end of last week.

The $515 million dividend funding and debt refinancing deal priced at par on Friday.

The Viper Energy Partners LP 7 3/8% senior notes due November 2031 (Ba3/BBB-/BB-) traded into a par ¼ bid on Monday morning, down ¼ of a point.

That price drop coincides with weaker crude oil prices, the trader noted.

At mid-morning the barrel price of West Texas Intermediate crude for November delivery was down 56 cents, or 0.64%, at $87.13.

Viper Energy priced its $400 million split-rated issue at par on the high-yield desk last Thursday.

The primary market sat idle as the new week got underway.

Only one deal remains on the active forward calendar.

Co-issuers Global Aircraft Leasing Co., Ltd. (GALC) and Global Sea Containers II Ltd. (GSCL II) are on the road with a $1.95 billion offering of five-year senior PIK toggle notes (Ba2//BB-).

They are in the market to pay off the GALC 6½% senior PIK toggle notes due September 2024.

The price of that 2024 paper has been in motion since the new deal was announced, implying some risk that the new notes will not be successfully placed, sources say.

However, talk of concessions from the issuer saw the 6½% bonds trade back toward the vicinity of their post-announcement highs, according to the bond trader, who spotted them at 97¾ bid on Monday morning, up a point, implying that the new deal has found firmer footing.

They traded as high as 98 after the new deal was announced, then slipped to as low as 95 bid, 95¼ offered as the ice appeared to be thinning beneath the $1.95 billion new offer, now on the road, the trader recounted.

Noting that interest payments on the 2024 bonds were PIKed three times – generally coinciding with the coronavirus pandemic – potential buyers of the new bonds are keen to incentivize the company to make its coupon payments in cash, sources say.

There is one conspicuous incentive already structured into the deal: a whopping 200 basis points coupon step-up for PIK payments, 125 bps higher than the typical 75 bps PIK premium.

However, investors want more, sources say.

Among proposals under discussion are a special funded escrow account covering initial cash coupon payments, and an indenture prohibiting the company from cash dividend payments during a fiscal period in which it makes PIK payments to the new bondholders.

The new deal is in the market with initial talk that has it coming with a cash coupon in the 11% area, with the aforementioned 200 bps PIK step-up.

Pricing is expected this week.

Fund flows

The dedicated high-yield bond funds sustained $358 million of net daily cash outflows on Friday, according to a market source.

High-yield ETFs saw $238 million of outflows on the day.

Actively managed high-yield funds sustained $120 million of outflows on Friday, the source said.

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