Thompson Creek soars on acquisition news; Transocean active but lower; Care Capital slates

By Paul Deckelman and Paul A. Harris

New York, July 6 – The junk bond market saw a surge Wednesday, on active volume, in Thompson Creek Metals Co. Inc. bonds, some of which jumped by as much as 30 points or more on the news that the precious metals, copper and molybdenum mining concern had agreed to be bought in a $1 billion deal by sector peer Centerra Gold Inc. – which plans to redeem or otherwise satisfy and discharge Thompson Creek’s three outstanding series of bonds.

Traders said that was clearly the dominant name on Wednesday.

They also saw continued fairly brisk activity in Transocean Ltd.’s bonds, though at somewhat lower levels than had been seen on Tuesday, when the Swiss offshore energy drilling contractor’s paper had firmed across its capital structure on the news that it will repurchase up to $1 billion of its existing bonds through a tender offer and will fund that tender offer with a $1.5 billion new issue, which would be Junkbondland’s first new offering since mid-June. A ratings agency downgrade was seen to blame for the retreat.

Transocean meanwhile continued to shop its megadeal to potential investors, although some sources in the market said that the order book is building slowly and that the offering is likely to price wider than initial guidance.

Elsewhere in the primary sphere – just finally getting itself back together after an extended late-June/early July hiatus due to volatile conditions in the overall global capital markets – health-care REIT Care Capital Properties, LP was heard to be bringing a $500 million 10-year issue to market this week, with the nominally investment-grade company marketing its deal to junk investors as well as its normal high-grade investor base.

Statistical market performance measures were mixed for a third straight day on Wednesday, after having been higher all around for four consecutive sessions between last Tuesday and Friday.

Care Capital to price

No high-yield deals were priced on Wednesday.

Care Capital Properties announced a $500 million 10-year senior bullet offer (expected Baa3/expected BBB-/confirmed BBB-), which is being run jointly on the high-grade and high-yield desks in an effort to reach out to a broad investor base.

The Chicago-based health-care REIT is whispering the deal with a 5¼% yield and plans to price it on Thursday.

Wells Fargo Securities LLC, Barclays, BofA Merrill Lynch and J.P. Morgan Securities LLC are the joint bookrunners for the debt refinancing.

Meanwhile there is one straight-out high-yield deal in the market.

Transocean Inc. is attempting to place $1.5 billion of seven-year senior notes (B1/BB-) via Morgan Stanley & Co. LLC and Goldman Sachs & Co.

The deal was scheduled to be pitched to investors during an investor call and a group lunch on Tuesday.

Early guidance was in the low 9% range. However, pricing is expected to move higher, sources said on Wednesday.

The order book for Transocean's bond deal was at $500 million mid-morning on Wednesday, a trader said.

A pipeline

There is a pipeline of deals that will begin to come – perhaps starting on Thursday – if the stability seen in the capital markets on Wednesday afternoon carries overnight, sources say.

Dealers were eyeing the primary market for a possible Wednesday deal but were sidelined by volatility in Europe overnight on Tuesday and on Wednesday morning in the United States, according to a syndicate banker.

Although bonds were being marked lower in the secondary market, there was not a great deal of product being offered, a trader said shortly before Wednesday midday.

Meanwhile word out of Europe is that there is a drive-by deal teed up; it might have come as early as Tuesday had market conditions been favorable, a source said.

There is cash to be put to work, market sources say.

The most recent fund flow information is positive.

Amid a backdrop of volatility in equities, high-yield exchange-traded funds saw a very healthy $410 million of inflows on Tuesday, the most recent session for which data was available at press time, according to a trader.

ETFs were buying on Tuesday and were in the market as buyers again on Wednesday, a source said.

Actively managed funds were also positive on Tuesday, with $60 million of inflows on the day.

The flows of the bank loan funds were negative, however.

The loan funds sustained $40 million of outflows on Tuesday.

Thompson Creek up on buyout

In the secondary realm, traders pointed to Thompson Creek Metals as the most notable name of the day, with the Littleton, Colo.-based gold, silver, copper and molybdenum mining and processing company’s bonds jumping on the news that it had agreed to be acquired by Canada’s Centerra Gold.

“It was up pretty good today,” a trader said, with no small amount of understatement.

The most active issue in the company’s capital structure, its 12½% notes due 2019, zoomed by 33 points from its most recent pre-news round-lot level in the low 70s, jumping as high as 106¾ bid on the day before closing out at 105 bid, with over $28 million having changed hands, putting the issue high up on the day’s Most Actives list.

The company’s 7 3/8% notes due 2018, which likewise had last traded round lots in the lower 70s in late June, shot up to par bid on Wednesday, a gain of some 27 points, with over $21 million having traded.

Its 9¾% senior secured notes due 2017 “were already trading around par” because of their secured status, the trader said, noting that the bonds had risen another 2½ to 3 points on the day to end at 103 bid, on volume of over $11 million.

Ironically, he noted “a lot of the guys who buy yield-to-call stuff didn’t want to touch these things” and now were probably kicking themselves for that poor decision.

“They looked at how they traded, at 15 cents [the lows that the senior unsecured paper had fallen to back in early February], then at 75 cents” and decided to take a pass on them.

Under the terms announced on Wednesday, Toronto-based Centerra’s deal for Thompson Creek is valued at around $1.1 billion. Each Thompson Creek share will be exchanged for 0.0988 Centerra shares, and Centerra will redeem Thompson Creek’s $889 million of bonds with interest.

The buyer will also take on $47 million of capital lease obligations.

Transocean trades off

Elsewhere, Transocean’s bonds – which had firmed by around 3 to 4 points on Tuesday – were seen having come off those closing peak levels in Wednesday’s trading, probably due in part to a ratings downgrade for the Vernier, Switzerland-based offshore drilling contractor’s existing bonds in anticipation of the $1.5 billion deal it is currently shopping around.

A trader saw its 6 3/8% notes due 2021, whose coupon steps up to 8 1/8%, having lost 1 1/8 point on the day, coming down to 89 bid, with over $21 million having traded. On Tuesday, those bonds had gained 4¼ points on the news that Transocean would tender for up to $1 billion of those bonds, its 6½% notes due 2020 and its 3.8% notes due 2022, whose coupon steps up to 5.05%.

The 6½% notes, up about 5 points on the day on Tuesday, were pretty much unchanged at 94½ bid on Wednesday, with around $8 million of round-lot trades and a huge amount of smaller odd-lot transactions.

The 3.8%/5.05% notes, up around 4 points on Tuesday, eased by ½ point on Wednesday to end at 75½ bid, with over $19 million traded.

Other bonds in the capital structure not being tendered for were also seen following a similar trajectory.

The company’s 6.8% bonds due 2038, which had firmed by around 2 points on Tuesday, gave it all back on Wednesday, dropping back to around the 63 3/16 bid level, with over $19 million traded.

Its shortest maturity – the 6% notes due 2018, up 1 point on Tuesday – were off by ¼ point Wednesday at 102½ bid, with over $19 million having changed hands.

A trader noted the ratings downgrade from Moody’s Investors Service, which dropped the unsecured bonds to Caa1 from B2 and assigned the new bonds Transocean Inc. is bringing a B1 rating.

Moody’s pointed out that the proposed senior notes, while unsecured like the existing bonds, will be guaranteed by certain Transocean subsidiaries and its parent company, Transocean Ltd.

While Moody’s acknowledged that the new deal, and the tender offer for the existing bonds that will be financed from the proceeds, “will improve Transocean's debt maturity profile and enhance its already very good liquidity position,” it also cautioned that “the existing senior notes that remain outstanding will be structurally subordinated to the new notes following this transaction, which resulted in the downgrade of the existing senior notes ratings.”

Meantime, a trader said that the pending new deal itself “seems to be in limbo,” and he raised the possibility that given renewed volatility in the capital markets, “it may not get done.”

He said that he had heard from a buyside source that “pricing is not going as well as the company was hoping for, and the [order] book is not as subscribed as it should be,” considering that this would be the first junk bond deal to hit the paper-starved market since AmeriGas Partners LP’s $1.35 billion two-part offering back on June 20.

Indicators stay mixed

A trader said that “the market was better overall today. It held in, about unchanged, early on, even as oil and equities got lower. Then it got better later on.”

Meanwhile, statistical market performance measures were mixed for a third straight day on Wednesday, after having been higher all around for four consecutive sessions between last Tuesday and Friday. It was the fifth mixed session in the last 12 trading days.

The KDP High Yield index firmed by 2 basis points on Wednesday to end at 68.13, its sixth consecutive gain and seventh advance in the last nine sessions. It had climbed by 13 bps on Tuesday.

Its yield came in by 1 bp on Wednesday to 6.03%, its sixth straight narrowing after having widened for two sessions before that. It had also tightened by 3 bps on Tuesday.

The Markit Series 26 CDX index gained nearly 5/16 point on Wednesday to close at 103 5/32 bid, 103 3/16 offered. The index was rebounding from two straight losing sessions, including Tuesday, when it was down by 7/16 point. Counting four straight gains before that, Wednesday was the index’s fifth upturn in the last seven sessions.

But the Merrill Lynch High Yield index finally weakened by 0.005% on Wednesday after having posted six gains in a row before that, including Tuesday’s 0.067% improvement.

That loss cut its year-to-date return to 9.867% from Tuesday’s 9.872%, which had been its third consecutive new peak level for the year so far.

© 2015 Prospect News.
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