Morning Commentary: Digicel bonds up on exchange news; market quiet ahead of holiday

By Paul A. Harris

Portland, Ore., Aug. 31 – The high-yield bond market opened quiet and flat on Friday ahead of the extended Labor Day holiday weekend in the United States, according to a trader in New York.

Bonds of Jamaica-based Digicel Ltd. were up on news of an exchange offer that would address up to $3 billion of the company's near-term maturities, according to a U.S.-based high-yield bond investor.

The Digicel Group Ltd. 8¼% senior notes due September 2020 were up 2 points on the day at 73 bid, 76 offered, the investor said, pointing out that the proposal has up to $2 billion of those bonds being exchanged for new Digicel Group One Ltd. 8¼% senior notes due 2022, moving them ahead on the capital structure of the other existing issue under consideration in the exchange, up to $1 billion of the Digicel Group Ltd. 7 1/8% senior notes due April 2022.

Those 7 1/8% notes due 2022 would be exchanged for up to $1 billion of new 8¼% senior cash pay/PIK notes due 2024 to be issued by direct subsidiary Digicel Group Two Ltd., the parent of Digicel Group One. Hence they would be primed by the new 2022 paper.

On the news of the exchange, the existing 7 1/8% notes due 2022, which would end up below the existing 8¼% notes due 2020 in the exchange configuration, were 59½ bid, 60½ offered, up a point on Friday, the investor said.

Bondholders will probably be cool to the exchange deal, the investor remarked, adding that there was a hope that Digicel founder Denis O'Brien, would come with some equity, recounting that O'Brien tried and failed to float an initial public offering of stock in October 2015.

The company has $6.7 billion of debt, with 6.5 times to 7 times leverage that would be significantly lower on a mark-to-market basis, the investor said.

The 90% participation threshold required in the new exchange offer may prove quite challenging to clear, the investor forecast.

Also in recent days, Digicel was in the news headlines when chief financial officer Ray Leclercq announced he will depart from the company just one year after taking the job.

Leclercq, a South African, stated he was leaving the company for personal reasons. However, his former boss, O'Brien, is not famous for being a man who is easy to work for, the investor remarked.

Recent issues

The primary market was quiet on Friday.

There was no hard news on a calendar for the holiday abbreviated post-Labor Day week.

However, there is an expectation that Refinitiv, with $5.5 billion equivalent of secured and unsecured notes in dollars and euros, backing that acquisition of a 55% stake in Thomson Reuters Financial & Risk by Blackstone and Canada Pension Plan Investment Board, will be early (and perhaps first) out of the gates, the investor said.

There is a sense that, particularly owing to its size, dealers are keen to get it out of the way, the source added.

Among the biggest issues to clear the market since the middle of July, all were trading at premiums to new issue prices.

The Altice France SA 8 1/8% senior secured notes due February 2027, the biggest dollar-denominated tranche at $1.75 billion, traded Friday at 101½, said the New York-based trader, who added that their most recent market was 101 1/8 bid, 101 7/8 offered.

The deal priced at par on July 17.

The Banff Merger Sub, Inc. (BMC Software) 9¾% senior notes due September 2026 were par bid, par ¾ offered on Friday. The $1,475,000,000 deal priced at par on Aug. 9.

The clear outperformer among the big recent deals remains the Verscend Holding Corp. 9¾% senior notes due August 2026, which were 103 bid, 103½ offered on Friday morning, the trader said.

The $1.1 billion Verscend deal priced at par on Aug. 10.

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