Morning Commentary: PHI notes fall as refinancing hopes dwindle; HC2 restructures deal

By Paul A. Harris

Portland, Ore., Nov. 13 – High-yield bonds were unchanged to 1/8 point lower on Tuesday amid continuing capital markets volatility, a trader said.

Plunging crude oil prices continue to drag down the high-yield energy sector, representing about 15% of the index.

The barrel price of West Texas Intermediate crude for December 2018 delivery was down 4.1%, or $2.46 at $57.47 heading into midday New York time on Tuesday.

One of the most active issues was the California Resources Corp. 8% senior secured second-lien notes due December 2022, which generally tracks crude oil prices.

The California Resources 8% notes were 83 bid, 84 offered Tuesday morning. Those bonds were 88¾ bid, 89½ offered mid-to-late in the Oct. 5 week, sources said.

An underperformer in the sector was oilfield support helicopter services provider PHI, Inc., sources said.

The PHI 5¼% senior notes due March 15, 2019 were 2 points lower at 84 1/8 bid as the market warily eyes that maturity date against the backdrop of a new crash in oil prices.

In late June the Lafayette, La.-based company withdrew a downsized $300 million (from $500 million) bond deal, the proceeds of which had been earmarked to address that maturity.

PHI also put up some disappointing numbers in its earnings report late last week. Consolidated net loss for the quarter ended Sept. 30, 2018 was $11.5 million compared to a net loss of $3.3 million for the quarter ended Sept. 30, 2017.

There was also weakness in the chemicals sector, a trader said.

The Adient Global Holdings Ltd. 4 7/8% senior notes due August 2026 were 80 bid, 80¼ offered, down ¾ point since Friday, the source said.

Among recent issues are some bright spots.

The United Rentals (North America) Inc. 6½% senior notes due December 2026 were holding well above new issue price at 101½ bid, 102 offered on Tuesday, a trader said.

The $1.1 billion issue priced at par on Oct. 24.

HC2 downsizes

In a generally sidelined new issue market, HC2 Holdings, Inc. provided details on a downsized $470 million offering of senior secured notes on Tuesday.

The deal, via bookrunner Jefferies, is downsized from $535 million, with $55 million of the proceeds shifted to a concurrent offering of convertible securities, decreasing the overall amount of the capital markets transaction to $525 million from $535 million.

The maturity of the senior secured notes decreased to three years from five years. Call protection decreased to 1.5 years from two years; the initial call premium remains at par plus 50% of the coupon.

The company put in place a redemption feature specifying that proceeds from any sale, transfer or disposition of assets must be applied to fund a call or put of the senior secured notes at 104.5. That premium steps down to par in the final year.

There was no update on price talk which circulated during the Nov. 5 week: 11½% coupon at 98.75 to yield 12%.

There were also changes to the minimum collateral coverage, minimum liquidity, maximum net leverage and minimum fixed charge coverage covenants.

Books close at 4 p.m. ET on Tuesday, and both the senior secured notes and the convertibles are set to allocate on Wednesday.

Proceeds from the senior secured notes and convertibles will be used to redeem the company’s outstanding 11% senior secured notes due 2019.

Elsewhere Atlantica Yield plc was heard to be pre-marketing a $300 million offering of senior notes due 2026 via BofA Merrill Lynch.

The Brentford, England-based renewable energy and infrastructure company plans to use the proceeds to take out its 7% senior notes due 2019 and for general corporate purposes, including acquisitions of assets.

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