Alta Mesa ‘a disaster’; Windstream rebounds; Tenet Healthcare gains post-earnings

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 26 – The domestic high-yield primary market remained dormant on Tuesday. However, the European primary market saw some action.

Paris-based Rexel priced a €600 million issue of seven-year senior notes (Ba3/BB-) at par to yield 2¾%.

The European primary’s forward calendar also grew with Playtech plc on the road for a €350 million offering of seven-year senior secured notes (expected Ba2/confirmed BB).

With new paper drifting from focus in the domestic secondary space, trading activity focused on earnings and company specific news.

Alta Mesa Resources Inc.’s 7 7/8% senior notes due 2024 tanked on Tuesday after the company reported deficiencies in its internal controls which resulted in a $3.1 billion write-off.

Windstream Corp.’s junk bonds continued to see active trading in the secondary space with the bonds rebounding as the company seeks approval for $1 billion in debtor-in-possession financing.

Tenet Healthcare Corp.’s junk bonds were making gains in high-volume activity after an earnings beat.

Rexel prices tight

The Tuesday primary market was an all-Europe show.

Paris-based Rexel priced a €600 million issue of seven-year senior notes (Ba3/BB-) at par to yield 2¾%.

The yield printed at the tight end of the 2¾% to 2 7/8% final yield talk, according to a buyside source who added that the debt refinancing deal was well oversubscribed.

Initial talk was in the low 3% area.

Joint global coordinator and joint lead bookrunner BNP Paribas will bill and deliver.

Credit Industriel et Commercial SA and ING Bank NV, London Branch were also joint global coordinators and joint lead bookrunners.

Playtech roadshow

Playtech is conducting an investor roadshow for a €350 million offering of seven-year senior secured notes (expected Ba2/confirmed BB).

NatWest Investments, Santander, UBS and UniCredit are the active bookrunners.

The Isle of Man-based gambling software developer plans to use the proceeds to refinance its existing €297 million convertible bond and for general corporate purposes.

Scarcity of supply

The high-yield market is awaiting a meaningful pick up in supply and will probably be waiting for a while.

That's the word from the JP Morgan Global High Yield & Leveraged Finance Conference, now underway in Miami, according to an investor on hand at the conference, who took a late Tuesday telephone call from Prospect News.

Certainly “new money” deals – new bonds to finance mergers, acquisitions or capital expenditures – won't pick up meaningfully in the near future.

Some people are saying that the market has run too far too fast, the investor said.

People were also commenting upon how light private equity activity is at present, the source added.

Bridge loans are few and far between, and the banks are not being asked for new bridges, the investor said.

There should be a steady stream of debt refinancing deals, i.e. deals that take investors out of existing paper by replacing it with new bonds, as opposed to real money deals.

However, even the flow of refinancing deals is not expected to be exceptionally heavy.

The refinancing of 2020 and 2021 maturities has largely taken place with a crush of deals in the 2016 to early 2018 period, as companies anticipated rate increases, the source explained.

So, a meaningful wall of maturities does not really come into play before the 2022 maturities.

And with the Treasury yield low and range-bound in the early part of 2019, companies are apt to sit tight for the present with respect to intermediate range maturities, the investor said.

Alta Mesa ‘a disaster’

Alta Mesa’s 7 7/8% senior notes due 2024 tanked in high-volume activity on Tuesday.

The notes dropped 18½ points to 28¼, a market source said.

More than $50 million of the bonds were on the tape by the late afternoon.

“It’s a disaster,” a market source said.

The notes tanked after the oil and natural gas exploration and production company reported in its preliminary fourth quarter report, “ineffective internal control over financial reporting due to an identified material weakness.”

The material weakness resulted in a write-off of $3.1 billion and a delay in the filing of the company’s fourth-quarter report, the company said in a press release.

The conference call scheduled for Wednesday was canceled until after the release of the company’s annual report.

“It’s criminal,” a market source said. The company reported $4.4 billion in assets.

However, the company stated in its press release the $3.1 billion in impairment charges would have no material affect on its liquidity, cash flow, or ability to meet its debt obligations.

Sources were skeptical.

Windstream rebounds

Windstream’s junk bonds rebounded on Tuesday as the company entered bankruptcy proceedings and requested court approval for $1 billion in financing.

While Windstream’s junk bonds were mixed on Monday after the company filed for bankruptcy, the full capital structure was posting gains on Tuesday, according to a market source.

Windstream’s 7¾% senior notes due 2020 rose 9¼ points to 24¾.

Windstream’s 6 3/8% senior notes due 2023 also rose 9¼ points to 24¾.

Windstream’s 9% senior notes due 2025 rose 8 points to 58.

The 7½% senior notes due 2023 rose 7¾ points to 22¾.

The 6¾% senior notes due 2028 rose 7¼ points to 47 7/8. The 7¾% senior notes due 2021 rose 6¾ points to 24.

The 10½% notes due 2024 rose 4 points to 62½. The 9% senior notes due 2025 rose 4 points to 58½.

The notes were on the rise as Windstream’s bankruptcy proceedings begin.

The telecommunication company was offered a last-minute rescue bid to pay off the 6 3/8% senior notes due 2023, which were the focus of the court ruling that caused Windstream to file for bankruptcy, a market source said.

However, Windstream and certain creditors rejected the offer.

The company is seeking court approval for $1 billion in debtor-in-possession financing, which includes $500 million in a revolver and $500 million in a term loan.

Tenet Healthcare gains

Tenet Healthcare’s junk bonds were on the rise on Tuesday after the healthcare company reported a fourth-quarter earnings beat.

Tenet’s 6¾% senior notes due 2023 rose 1¾ points to 102¼. More than $31 million of the bonds were on the tape by the late afternoon.

Tenet reported non-GAAP earnings per share of 51 cents in the fourth quarter versus analyst expectations for earnings per share of 28 cents.

Revenue was $4.62 billion versus analyst expectations for revenue of $4.51 billion.

Monday inflows

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

High-yield ETFs saw $33 million of inflows on the day.

Actively managed funds saw $21 million of inflows on Monday, the trader said.

Month-to-date net flows for the combined funds stood at positive-$4.6 billion, to the Feb. 25 close, the source noted, adding that in the month of January the combined funds saw $5.4 billion of net inflows.

Indexes

Indexes were mixed on Tuesday after a mixed start to the week.

The KDP High Yield Daily index rose 3 basis points to 69.90 with the yield 5.99%. The index was flat on the week after dropping 3 bps on Monday.

The index saw a cumulative gain of 18 bps on the week last week.

The ICE BofAML US High Yield rose 9.5 bps with the year-to-date return now 6.172%.

The index gained 18.3 bps on Monday.

The index saw a cumulative gain of 33.6 bps on the week last week.

The index shot past 6% returns on Monday after passing 5% returns on Feb. 12.

The index initially crossed the 5% threshold on Feb. 5 but sunk below it on Feb. 7.

The index surpassed 4% year-to-date returns on Jan. 30.

The CDX High Yield 30 index dipped 1 bp to close Tuesday at 106.38.

The index rose 11 bps on Monday after a cumulative drop of 15 bps on the week last week.

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