Morning Commentary: Staples bonds lag in secondary; Intelsat drops on satellite trouble

By Paul A. Harris

Portland, Ore., April 10 – Bonds of Staples, Inc., which priced in a Tuesday megadeal, were trading at or below their issue prices on Wednesday morning, according to a trader based in New York.

Staples’ 7½% senior secured notes due April 15, 2026 (B1/B+) were 98¾ bid, 99¼ offered, the trader said.

The secured bonds priced at par in a tranche that was downsized from $2,025,000,000 after having been previously upsized from $750 million.

The unsecured paper, Staples’ 10¾% senior notes due April 15, 2027 (B3/B-), was straddling its issue price at 99 7/8 bid, par 3/8 offered on Wednesday morning, the trader said.

That tranche came sized at $1 billion, downsized from $1,375,000,000, and priced at par.

The overall $3 billion bond deal underwent extensive covenant changes.

One topic of conversation on Wednesday morning focused on the disclosure that an affiliate of sponsor Sycamore Partners took down $180 million of the unsecured bonds, contractually agreeing not to dispose of the notes for value, except in limited circumstances, until Sept. 1, 2019, the trader said.

Late Tuesday, another trader, noting that Sycamore is the recipient of the dividend in the Staples uses of proceeds, wondered what the impact will be should the equity sponsor decide to sell its $180 million of unsecured paper after the lock-up period expires and expressed the opinion that it is not an ideal formula for assuring that the bonds will trade well.

Intelsat tumbles, recovers

The junk index was up 1/8 point in the early going on Wednesday, a trader said.

High-yield ETF share prices were better on the morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.17%, or 14 cents, at $86.46 per share.

News that Intelsat, SA reported a service outage on the Intelsat 29e satellite, impacting maritime, aeronautical and wireless customers in the Latin America, Caribbean and North Atlantic regions, initially sent shares tumbling around 10% and bonds to fall a point to 1½ points across the curve, the trader said.

However, both the shares and the bonds staged a quick Wednesday morning rebound.

The service outage was caused by a propellant leak.

Intelsat said it continues to work with the satellite’s manufacturer, Boeing, on recovering communication.

Ferratum talk 98 to 99

In a generally quiet new issue market Finland-based Ferratum Oyj talked a €100 million add-on to the Ferratum Capital Germany GmbH three-month Euribor plus 550 basis points senior floating-rate notes due April 24, 2023 (//BB-) at 97 to 98.

Books close Thursday.

Pareto is the bookrunner.

Meanwhile the dollar-denominated calendar featured just one deal at Wednesday's open.

Australia-based Mineral Resources Ltd. is marketing a $750 million offering of eight-year senior notes (B+), which is in the market with early guidance in the 7¾% to 8% area and is expected Friday business.

And look for a master limited partnership to bring a debt refinancing deal as a Thursday drive-by via Wells Fargo Securities LLC, a market source advised.

Tuesday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Tuesday, a trader said.

Actively managed high-yield funds saw a hefty $220 million of inflows on the day, the source said, noting those inflows were fairly concentrated.

High-yield ETFs saw $54 million of inflows on Tuesday, the trader said.

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