Verallia downsizes; traders see secondary gains post-Fed news; Intelsat bonds lose altitude

By Paul A. Harris and Stephanie N. Rotondo

Seattle, June 15 – Wednesday saw one new issue, Verallia Packaging SAS’ downsized €200 million add-on to the Horizon Holdings III SAS 5 1/8% senior secured notes due 2022.

After several sessions of declines, the secondary high-yield bond market was looking to regain ground on Wednesday.

“The last few days felt pretty weak,” a trader said. In midweek trading, “it did feel like some things kind of rebounded a little bit.

“I still think volumes are pretty limited,” he added.

The day’s gains came as the Federal Reserve said it was keeping interest rates steady for the time being, citing anemic job growth and concerns about the United Kingdom’s upcoming vote to possibly leave the European Union.

While it remains to be seen whether the central bank will raise rates in July, it did appear that more members were leaning towards just one hike this year, instead of the two previously forecast.

Despite that uncertainty, a trader said that the market’s more “on-the-run” names were trading well.

For instance, Frontier Communications Corp.’s 11% senior notes due 2025 ticked up nearly a point to 101½, he said.

Western Digital Corp.’s 10½% senior notes due 2024 were also firm, closing at 103½. That compared to previous levels of 103, a trader said.

But while on-the-runs were moving in line with the day’s trend, energy sector bonds were not. Oil and gas debt was pressured yet again on Wednesday, as domestic crude prices retreated over 2% to end at $47.47 a barrel – a three-week low.

Weakness in the commodity was due to a smaller-than-expected drawdown from U.S. stockpiles and increased inventories at the Cushing, Okla.-based delivery point. The market is now wondering if Canadian production levels are approaching pre-wildfire levels sooner than expected and how increased U.S. drilling activity will impact overall supply.

Among oil and gas names, a trader said California Resources Corp.’s 8% second-lien notes due 2022 were “a good benchmark,” seeing the paper falling to a 68 handle from previous levels “close to 70.”

Verallia drastically downsized

Wednesday's sole primary market news came in the form of terms on Verallia Packaging's drastically downsized €200 million add-on to the Horizon Holdings III SAS 5 1/8% senior secured notes due Aug. 1, 2022 (existing B1/confirmed B+).

The deal, downsized from €500 million, priced at 102.625 to yield 4.63% on Wednesday.

The reoffer price came at the rich end of price talk in the 102.5 area.

Credit Suisse was the left global coordinator. Deutsche Bank was the joint global coordinator. Barclays, BNP Paribas, Nomura and SG CIB were the joint bookrunners for the debt refinancing deal.

The only other deal on the active forward calendar at Wednesday's close is also denominated in euros.

Cott Corp. is on a roadshow for a €450 million offering of eight-year senior notes (B3/B-) through Thursday.

Price talk has yet to surface, a market source said on Wednesday.

Joint bookrunner Deutsche Bank will bill and deliver. JPMorgan, Wells Fargo, BofA Merrill Lynch and SunTrust Robinson Humphrey are also joint bookrunners.

Big ETF outflows

For the third consecutive day high-yield exchange-traded funds saw big outflows on Tuesday, the most recent session for which data was available at press time, sources said.

The ETFs sustained $787 million of outflows on Tuesday. That followed the $194 million of outflows seen on Monday and the $666 million of outflows on Friday.

However, on Wednesday, in the run-up to the Federal Reserve's statement at the conclusion of its two-day June meeting at which it left interest rates unchanged, ETFs were trying to buy, a New York-based bond trader said.

Meanwhile asset managers remained essentially flat on Tuesday, seeing $5 million of outflows on the day.

The outflows tend to be concentrated in the fast-money portion of the market, hedge funds and ETFs, a trader remarked.

Asset managers continue to have cash to put to work, the source said.

Risk aversion related to the so-called “Brexit” vote, the June 23 ballot on which voters in the United Kingdom will decide whether or not the country will leave the European Union, has taken hold in the high-yield secondary and sidelined the primary market, sources said on Wednesday.

The buzz in the market holds that beginning early next week, in the run-up to the vote, New York high-yield trading desks at Barclays and JPMorgan will be staffed around the clock to monitor any possible Brexit-related impacts on positions, a New York-based trader said.

Intelsat weakens

A trader said Intelsat SA bonds were “getting beat up” in midweek trading.

However, he said he wasn’t sure why the debt was weaker, nor had he heard any fresh news about the company’s tender offer for Intelsat Jackson Holdings SA paper.

He said the “luxco” bonds – such as the 7¾% notes due 2021 – were “down another point and change” at 25. He noted that the bonds traded as low as 24½.

As for the Jackson unit’s debt, the 7½% notes due 2021 ended at 65½, he said.

At another desk, a market source pegged Intelsat Jackson’s 6 5/8% notes due 2022 at 67 bid, off over a point on the day.

In early May, Intelsat said it had launched a cash tender for up to $625 million of three series of Intelsat Jackson bonds maturing 2021 through 2023. On May 18, the company reduced the amount of cash offered per each $1,000 of notes and extended the deadline to June 9. That was later pushed to June 14 and then again to June 22.

The company also said that it would pay the early tender premium on all notes tendered.

Intelsat is a Luxembourg-based commercial satellite services provider.

Indicators mixed

While market sources reported that it was an overall positive day in high yield, market indicators finished mixed for the day.

The KDP High Yield index dipped to 67.57 from 67.61 on Tuesday, though yields held steady at 6.15%.

The CDX North American Series 26 High Yield index, however, ticked up over a tenth of a point to 102.13 bid, 102.23 offered, according to one source.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.