Dollar primary still on hold, Stonegate to shop sterling deal; Intelsat adds to gains, Valeant off on results

By Paul Deckelman and Paul A. Harris

New York, Feb. 28 – For a second consecutive session, the dollar-denominated portion of the high yield world was quiet on Tuesday to close out a busy month of February. Much of Junkbondland’s attention meanwhile remained focused on this week’s well-attended J.P. Morgan high yield conference.

Once again, the only real news in the new-deal realm came out of Europe, where syndicate sources said that British tavern chain operator Stonegate Pub Co. Financing plc was getting ready to hit the road to market a pair of fixed- and floating-rate tranches of five-year sterling-denominated secured notes.

On the domestic front, the only new-deal activity came from the crossover space, as the split-rated liquefied natural gas company Sabine Pass Liquefaction, LLC brought a megadeal-sized 11-year transaction to market.

Away from the new-issue sphere, for a second consecutive session, communications satellite operator Intelsat SA’s bonds were gaining altitude on Tuesday, many of them on heavy volume, after the company formally announced what had only been speculated about in the media on Monday – that it will merge with industry peer OneWeb LLC and the combined company will receive a hefty cash injection from Japanese tech company SoftBank. As part of that combination, Intelsat will launch a series of note exchanges that aim to ultimately reduce its overall debt load and bring its leverage ratio down as well.

On the downside, Valeant Pharmaceuticals International Inc.’s bonds were lower across that company’s capital structure, after the Canadian drugmaker reported weak fourth-quarter results.

Statistical market performance measures turned mixed on Tuesday after having been higher across the board on Monday, but mixed for two straight sessions before that.

Quiet pervaded that new issue market on the last session of March.

The European primary market generated the session's sole news item.

Stonegate Pub Co. Financing plc plans to commence a two-day London roadshow on Wednesday for a £585 million two-part offering of five-year senior secured notes (expected ratings B2/B).

The deal includes £395 million of fixed-rate notes which come with two years of call protection and £190 million of floating-rate notes which come with one year of call protection.

Barclays is the sole bookrunner.

The Luton, Bedfordshire, England-based privately owned managed pub company plans to use the proceeds to fully redeem its existing secured notes due 2019, as well as to return capital invested in relation to the acquisition of iNTERTAIN Ltd. and certain other acquisitions, and to finance a distribution to sponsor TDR Capital LLP.

Cheniere/Sabine $1.35 billion

In the crossover market Sabine Pass Liquefaction, LLC a wholly owned subsidiary of Cheniere Energy Partners, LP, priced a $1.35 billion split-rated issue of 4.2% 11-year notes (Ba1/BBB-/BBB-) at 99.903 to yield 4.211%.

BofA Merrill Lynch, HSBC, Morgan Stanley and SMBC were the joint bookrunners on the capital projects deal.

Inflows on Monday

The cash flows of the dedicated high yield bond funds were positive on Monday, the most recent session for which data was available at press time.

High yield ETFs saw $81 million of inflows on the day.

Actively managed funds saw $4 million of inflows on Monday.

The cash flows of the dedicated bank loan funds eclipsed both high yield classes put together.

The loan funds saw $215 million of inflows on Monday.

Closing out a busy month

Although there were no U.S. dollar-denominated and fully junk-rated deals heard to have priced during the last two trading sessions of February on either Monday or Tuesday, the month went into the books as a fairly busy one, according to data compiled by Prospect News.

Some $20.775 billion of such paper was brought to market in 38 tranches by domestic or industrialized-country borrowers.

That was off slightly from the $21.028 billion which had gotten done in 39 tranches in January, the data indicated.

However, February’s issuance was more than double the $8.1 billion of new paper that had priced in 14 tranches in February of 2016.

But that was still down from the $29.499 billion that had priced in 45 tranches in February 2015 – and well down from the $36.338 billion in 60 tranches seen in February of 2012, the heaviest February ever in terms of new issuance, according to the data.

Bank of America was the leading junk bond underwriter in February, and also took over as the leader on a year-to-date basis so far from January’s champion, J.P. Morgan (see related story elsewhere in this issue).

JPM conference lull continues

Traders said that one of the key reasons for the sudden fall-off in new-issuance activity over the first two days of the week was the continuation of J.P. Morgan’s annual high yield and leveraged finance conference in warm and sunny south Florida.

That get-together – always one of the highlights of the junk bond industry’s annual calendar, attended by numerous portfolio managers and other investment decision-makers – opened on Monday and continues through Wednesday.

At least some of those at the conference are expected to remain in the Sunshine State for the remainder of the week, further stilling market activity.

However, one of the traders said that he was “hearing that the drive-by calendar could be pretty active tomorrow [i.e., Wednesday] and Thursday.”

He said that he had heard that “at least $5 billion” of opportunistically timed and quickly shopped new issues could come to market over the week’s remaining sessions.

Earlier, other market sources had indicated to Prospect News that perhaps as much as $6 billion in unscheduled deals could come clattering down the chute by the end of the week, with at least some of that expected to emanate from the J.P. Morgan conference.

New Sabine Pass deal quoted lower

In the secondary arena, a market source quoted the new Sabine Pass Liquefaction 4.2% senior secured notes due 2028 trading between 99.789 and 99.876 – “which is surprising,” he said, since it was below the notes’ issue price of 99.903.

He said that investment-grade investors were quoting the issue at 183/182 bps.

For a second day in a row, the Houston-based liquefied natural gas company’s existing 5 5/8% notes due 2025 were the most actively traded junk or split-rated issue, with over $164 million having changed hands on Tuesday and the bonds up more than 3.8 point to end somewhat above 109¾ bid. On Monday, a chart-topping more than $50 million traded, with the notes up by 5/8 point.

Traders noted that most of the activity in the split-rated credit originated with high-grade investors looking to pick up some yield, rather than with traditional junk investors.

Intelsat heads skyward

Away from the new deals, Intelsat’s various bonds were seen improved for a second consecutive session, given a boost on the announcement that the Luxembourg-based communications satellite company plans to merge with fellow satellite company OneWeb; the combined entity will be given a $1.7 billion equity injection by Tokyo-based tech powerhouse SoftBank, which currently owns 43% of Arlington, Va.-based OneWeb.

On Intelsat’s Tuesday conference call following the release of its 2016 fiscal fourth quarter and full-year results, company executives said that as part of that combination, Intelsat will soon launch a series of note exchanges that aim to ultimately reduce its overall debt load by as much as $3.6 billion and bring its leverage ratio of net debt as a multiple of adjusted EBITDA down as well to around 6.6 times from its current levels around 8.8. times (see related story elsewhere in this issue).

The bonds had risen smartly in very active trading on Monday amid news reports that Intelsat was in talks with OneWeb and SoftBank and continued to rise on Tuesday in even heavier trading upon official confirmation of Monday’s speculation.

The Intelsat Jackson Holdings SA notes “were up more than 2-to-3 points” on Tuesday, a trader said, “on top of yesterday’s gains.”

He saw its Intelsat (Luxembourg) SA bonds doing even better, “up anywhere from 5 to 10 points or even more” over the two-day span, “and pretty busy again.”

Intelsat’s 5½% notes due 2023 gained ½ point on Tuesday to end at 83 bid, with more than $116 million having changed hands. That came on top of the more than $30 million that had traded on Monday, when the notes had zoomed by more than 10 points on the session.

The company’s 7¼% notes due 2019 jumped by 2½ points, ending at 96½ bid on Tuesday, with over $84 million traded. On Monday, they had been 5-point winners, with over $26 million having traded.

Its 7¼% notes due 2020, which had risen by nearly 7 points on Monday, on volume of over $24 million, tacked on another 2 points on Tuesday, on more than $83 million of turnover.

Valeant bonds battered

On the downside, Laval, Que.-based pharmaceutical manufacturer Valeant’s various bonds were lower on the day after the company reported disappointing earnings and “their guidance was a little light,” a trader said.

He said “the structure is off by 1 to 2 points” pretty much across the board.

A trader said that Valeant’s 6 1/8% notes due 2025 fell by more than 1½ points to end at 80½ bid, with more than $97 million having traded.

Its 7½% notes due 2021 lost almost 1½ points to close just below 92 bid, with over $31 million moving around.

Indicators turn mixed

Statistical market performance measures turned mixed on Tuesday after having been higher across the board on Monday, but mixed for two straight sessions before that.

The KDP High Yield Daily index lost 4 basis points on Tuesday to end at 72.63 – its first downturn after five straight sessions of gains, including Monday’s 10 bps jump, which had carried it up to 72.67 – its fifth successive new high point for the year and over the past 52 weeks.

Its yield was unchanged at 4.94%, after having come in by 4 bps on Monday – its fifth narrowing in a row and after an unchanged session.

However, the Markit CDX Series 27 High Yield index posted its second consecutive gain on Tuesday after having suffered two losses in a row before that. It edged up marginally on Tuesday to close at 107 11/16 bid, 107¾ offered, on top of Monday’s 3/32 point rise.

The Merrill Lynch High Yield index rose by 0.089% on Tuesday, its seventh consecutive improvement after one loss and its 12th such upturn in the last 14 days. The index had risen by 0.153% on Monday.

The latest gain upped its year-to-date return to 2.924% – its seventh straight new peak level for 2017, up from the previous zenith of 2.833% on Monday.

© 2015 Prospect News.
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