Millicom, Recordati on tap; Petrobras, W&T, Ensco, Rowan improve; record ETF outflows Friday

By James McCandless and Paul A. Harris

San Antonio, Oct. 9 – In the high-yield new issue market, players in the United States returned from an extended holiday weekend to a modest calendar comprising a pair of acquisition financing deals coming off European syndicate desks, sources said, while the secondary market saw most of its activity in oil and gas names.

Luxembourg-based Millicom International Cellular SA, which operates in Latin America and Africa, is running an international roadshow for a $500 million offering of eight-year senior notes (expected ratings Ba2/BB+) through Wednesday.

Recordati SpA plans to sell €1.28 billion of seven-year senior secured notes (expected ratings B2/B) before the end of the week.

Meanwhile, Petroleo Brasileiro SA’s notes were at the top of the secondary, seeing gains as a result of the first round of Brazil’s presidential election.

W&T Offshore, Inc.’s new 9¾% second-lien notes due November 2023 were seen rising above par.

Elsewhere, Ensco plc’s notes gained after the company announced its planned purchase of Rowan Cos. plc for $2.38 billion. Rowan’s notes also improved.

On the flip side, Tempur Sealy International, Inc.’s paper has been declining since news broke Friday that Mattress Firm had filed for bankruptcy.

High-yield ETFs sustained $1.43 billion of outflows on Friday, their biggest-ever daily outflow, a trader said on Tuesday.

Millicom roadshow through Wednesday

Luxembourg-based Millicom International Cellular SA, which operates in Latin America and Africa, is running an international roadshow for a $500 million offering of eight-year senior notes (expected ratings Ba2/BB+) through Wednesday.

BNP Paribas, Goldman Sachs International, JPMorgan and Scotia are leading the deal to help fund Millicom’s acquisition of an 80% stake in Panama-based company Cable Onda.

Recordati selling €1.28 billion

Recordati SpA plans to sell €1.28 billion of seven-year senior secured notes (expected ratings B2/B) before the end of the week.

The deal is coming in tranches of fixed-rate notes and floating-rate notes. Tranche sizes remain to be determined.

Joint global coordinator Deutsche Bank will bill and deliver. Credit Suisse and Jefferies are also joint global coordinators.

Proceeds from the bond sale will be used to help fund the company’s acquisition of a 51.8% stake in the Milan-based telecom.

Beyond that modest calendar, volatility, particularly in Treasuries, is creating headwinds for high-yield new issue business, syndicate bankers in the United States say.

The yield on 10-year government paper rose more than 20 basis points in the past week, amid apprehensions that low unemployment and rising wages are sparking inflation.

After recently peaking above 3¼%, the 10-year Treasury yield had slid to 3.206% by Tuesday's close.

A modicum of stability in Treasuries and equities are precursors to a meaningfully revived junk new issue calendar, syndicate sources say.

Record ETF outflow on Friday

High-yield ETFs sustained $1.43 billion of outflows on Friday, their biggest-ever daily outflow, a trader said on Tuesday.

It included a $1.2 billion outflow from the HYG ETF, the source added.

Combined daily flows for Monday, with both high-yield ETFs and actively managed high-yield funds in the tally, were negative $1.01 billion, the trader said.

Counting adjustments made to numbers reported late in the previous weekly reporting period, the dedicated high-yield funds were tracking $3.755 of weekly outflows to Monday's close, encompassing Thursday through Monday.

The current reporting period began with last Thursday's open and concludes with Wednesday's close. The fund flow numbers encompassed in that period are expected to be reported Thursday by Lipper US Fund Flows.

Petrobras improves

Leading the secondary, Petrobras’ notes saw improvements across the board with about $169 million on the tape, traders said.

The 7 3/8% notes due 2027 rose about 1½ points to close at par ½ bid. The 5.999% notes due 2028, which had been trading at a 94 handle during the session, rose to about 95 bid.

The Rio de Janeiro-based oil and gas producer’s rise was attributed to news that right-wing candidate Jair Bolsonaro won the first round of voting in Brazil’s presidential election, a market source said.

Bolsonaro took 46% of the vote while his party won control of the lower house of Congress.

W&T Offshore gains

W&T Offshore’s new 9¾% second-lien notes due November 2023 were seen trading above par, market sources said, with $62 million of the new notes trading.

The 9¾% notes, seen moving upwards of par to par ¼ in early trading, ended up settling between par 3/8, par ½ at 100.438 bid.

The $625 million deal priced on Oct. 8.

Ensco, Rowan to merge

Ensco’s notes were rising on Tuesday, traders said.

The 7¾% notes due 2026 added 2 points to close at par bid. The 5.2% notes due 2025 gained 1½ points to close at 88 bid.

“The whole structure moved higher,” a trader said.

On Monday the London-based energy drilling contractor announced that it would be acquiring competitor Rowan in a $2.38 billion all-stock deal.

Under the terms of the deal, Rowan shareholders would receive 2.215 Ensco shares for each share held. As a result, 60.5% of the combined company is expected to be held by Ensco shareholders.

The deal is expected to close in the first half of 2019.

Rowan’s 4¾% notes due 2024 added ½ point to close at 90 bid. The 5.85% bonds due 2044 jumped up 3 points to close at 79½ bid.

S&P Global Ratings lowered Ensco’s issuer credit rating and put other ratings up for review.

Tempur Sealy down

After retailer Mattress Firm filing for bankruptcy on Friday, bedding manufacturer Tempur Sealy’s paper declined, market sources said.

The 5½% paper due 2026 fell ¼ point to close at 94¼ bid.

On Friday, the paper lost about ½ point.

Traders pointed to the difficulties that traditional mattress vendors are having in competing against disruptive online competitors.

“We’ve seen a lot of online competition gaining ground in the last few years and now Amazon is putting out their own mattress,” a trader said.

The Lexington, Ky.-based manufacturer was a one-time supplier to Mattress Firm, ending that relationship last year after failing to agree to new terms after Steinhoff International Holdings NV purchased Mattress Firm, a South African firm plagued by an accounting scandal.

Indexes decline

Three high-yield benchmarks started the week continuing the downward trend set at the end of the previous week.

The KDP High Yield Daily index dropped another 21 basis points to close at 70.17 at the end of the Tuesday session with the yield at 5.91%.

The index dropped by 16 bps on Friday and 12 bps on Thursday after rising 1 bp and 4 bps on Wednesday and Thursday, respectively.

The ICE BofAML US High Yield index continued to fall after two large drops in a row. The index lost 30.9 bps with the year-to-date return now at 1.771%.

The index lost 17.7 bps on Friday and 52.2 bps on Thursday.

Last Wednesday, the index lost 2.7 bps after gaining 5 bps last Tuesday.

The CDX High Yield 30 index lost 58 bps to close Tuesday at 106.653.

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