Avolon prices; Getty trades up; Bombardier, CenturyLink rise on earnings; funds add $728 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 14 – The domestic high-yield primary market saw one deal price during Thursday’s session.

Avolon Holdings Ltd. priced an upsized $1.1 billion of senior notes (Ba2/BB+/BB+) in two bullet tranches.

The forward calendar remains empty and new deal activity has slowed.

However, the high-yield market saw one of the best starts to the year in nearly 18 years with cash ready to be put to work, an indication of a robust future calendar, sources said.

The high-yield secondary space was mostly flat on Thursday.

However, Getty Images Inc.’s newly priced 9¾% senior notes due 2027 (Caa2/CCC+) were trading well above their issue price in high-volume activity.

Bombardier Inc.’s 7½% senior notes due 2025 were among the most actively traded issues in the secondary space with the notes posting gains after the aerospace company posted its first annual profit in several years.

CenturyLink, Inc.’s junk bonds were also on the rise following the telecommunications company’s earnings report.

Diebold Inc.’s 8½% senior notes due 2024 continued their upward momentum on Thursday with the notes again seeing large gains following its earnings report.

However, McDermott International Inc.’s 10 5/8% senior notes due 2024 continued their downward spiral on Thursday following the announcement of overages on one of their construction projects.

Meanwhile, high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall liquidity trends in the junk market – saw inflows of $728 million for the week ended Wednesday, according to fund-flow statistics generated by AMG Data Services Inc.

The inflow marks the third consecutive week of inflows and follows a record-setting inflow of $3.86 billion for the week ended Feb. 6.

Avolon upsizes to $1.1 billion

Primary market activity was slow on Thursday, with just one dollar-denominated deal pricing.

Avolon priced an upsized $1.1 billion of senior notes (Ba2/BB+/BB+) in two bullet tranches.

The deal featured an upsized $300 million add-on to Park Aerospace Holdings Ltd.’s 5¼% senior notes due Aug. 15, 2022 which priced at 101.375 to yield 4.814%.

The add-on size was increased from $250 million. The issue price came in the middle of the 101.25 to 101.5 price talk

In addition, Avolon Holdings Funding Ltd. priced an upsized $800 million of new senior bullet notes due May 15, 2024 at par to yield 5.246%.

The issue size was increased from $500 million. The yield printed near the middle of yield talk in the 5¼% area.

The overall size of the two-part transaction increased from $750 million.

Barclays and Credit Agricole CIB were the lead bookrunners.

Proceeds, including the proceeds resulting from the $350 million upsize, will be used for general corporate purposes including debt repayment.

Big start to 2019

The dearth of mid-February issuance is partly due to capital markets blackout periods in place from some prospective issuers into the late part of the month, as they freshen up earnings numbers with results from the fourth quarter of 2018.

That dearth of issuance is by no means a reflection of poor market conditions, an investor said on Thursday.

Junk bonds, which have returned 5.34% in the year to Wednesday's close, are off to the strongest start of a calendar year since 2001, the investor said, citing data in the J.P. Morgan High Yield Index.

The composite high-yield spread, which stood at 452 basis points at Wednesday's close, has narrowed by an impressive 115 bps since the beginning of the year, the source added.

And there is cash to be put to work in junk, which is a reliable precursor to a calendar, the investor assured.

Getty trades up

Getty Images’ 9¾% senior notes due 2027 were trading well above their issue price in the secondary space on Thursday.

The notes were quoted at 101¼ bid, 101¾ offered in the midafternoon and continued to trade up towards the market close, according to a market source.

The notes traded in a range of 101 to 102 1/8 during Thursday’s session and were changing hands between 101 7/8 and 102 1/8 in the late afternoon, a market source said.

More than $39 million of the bonds were on the tape by the late afternoon.

Getty Images priced a downsized $300 million issue of the 9¾% notes at par on Wednesday.

The issue size was decreased from $400 million, with the shifting of $100 million of proceeds to the euro-denominated tranche of its concurrent secured loan.

The yield printed 12.5 basis points inside of yield talk in the 10% area.

At its earlier $400 million size, the bond deal was heard to have been as much as four-times oversubscribed at the initial price talk of 10½%.

Bombardier gains

Bombardier’s 7½% senior notes due 2025 were making gains in high-volume activity in the secondary space on Thursday.

The notes rose 1 3/8 points to 98 3/8 in the late afternoon.

More than $42 million of the bonds had traded during Thursday’s session, making the 7½% notes one of the most active issues in the secondary space.

The notes were making gains after Bombardier announced fourth-quarter earnings and posted its first profit in about five years.

Bombardier reported free cash flow of $1.04 billion which surpassed analyst expectations for free cash flow of $890 million, Bloomberg reported.

Bombardier also reported net income of $318 million in 2018 after posting losses for the previous four years.

CenturyLink on the rise

CenturyLink’s junk bonds were also on the rise on Thursday following the telecommunications provider’s fourth-quarter earnings report.

CenturyLink’s 7½% senior notes due 2024 were the most active in the capital structure.

The notes rose 1½ points to 103½, according to a market source. More than $24 million of the bonds were on the tape by the late afternoon.

CenturyLink’s 7.6% notes due 2039 rose 7/8 point to 85 3/8 with more than $15 million of the bonds changing hands.

The 6 7/8% senior notes due 2033 rose 2 3/8 points to 97¾.

The 5.8% notes due 2022 rose 1 7/8 points to 102 1/8.

The 6¾% senior notes due 2023 rose 1 5/8 points to 102¾.

CenturyLink’s junk bonds were on the rise following its earnings report even as its equity tanked.

While CenturyLink reported EBITDA of $2.3 billion which missed analyst expectations for EBITDA of $2.32 billion, CenturyLink reported strong guidance for 2019, a market source said.

CenturyLink anticipates revenue of $9 billion to $9.2 billion versus analyst expectations for revenue of $9.08 billion.

CenturyLink also reported leverage of 4x with plans to further reduce leverage to 2.75x to 3.25x in 2019.

While the report was a positive for CenturyLink’s junk bonds, the company’s equity was trading down after the company announced it was reducing its annual dividend to $1 from $2.16 in 2019.

McDermott’s losses mount

McDermott’s 10 5/8% senior notes due 2024 continued their downward spiral on Thursday.

The notes dropped another 5 points to 79¾, a market source said.

More than $34 million of the bonds were on the tape by the late afternoon.

The notes dropped more than 8 points in high-volume activity on Wednesday after the company announced a cost overrun on one of its projects.

McDermott announced a $168 million charge for its Cameron LNG project in Louisiana which will impact its fourth-quarter operating statement, the company announced on Wednesday.

Diebold gains continue

Diebold’s 8½% senior notes due 2024 continued their upward momentum on Thursday.

The notes rose another 6 points to 83 on Thursday, a market source said.

The notes rose 11¾ points on Wednesday following the financial technology company’s fourth-quarter earnings report.

The 8½% notes have been under pressure since August when the company announced a disastrous second-quarter earnings report.

Mixed Wednesday flows

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

High-yield ETFs sustained $120 million of outflows on the day.

However, actively managed high-yield funds saw $171 million of inflows on Wednesday, the trader said.

News of Wednesday's daily flows surfaced ahead of a Thursday afternoon report that the combined funds saw $728 million of inflows on the week to Wednesday's close, according to Lipper US Fund Flows.

Indexes mixed

Indexes were mixed on Thursday, as they have been for much of the week.

The KDP High Yield Daily index rose 3 bps to close Thursday at 69.62 with the yield now 6.21%.

The index was up 4 bps on Wednesday and 13 bps on Tuesday after a 6 bps drop on Monday.

The index saw a cumulative gain of 8 bps on the week last week.

The ICE BofAML US High Yield index was largely flat on Thursday. The index sagged 0.2 bps with the year-to-date return now 5.341%.

The index was up 5 bps on Wednesday, 33 bps Tuesday and 7.7 bps on Monday after a cumulative gain of 16.7 bps on the week last week.

The index again shot past 5% returns on Tuesday after sinking below the 5% threshold last Thursday.

The index initially crossed the 5% threshold on Feb.5 after surpassing 4% year-to-date returns on Jan.30.

The CDX High Yield 30 index dropped 8 bps to close Thursday at 105.97.

The index was down 10 bps on Wednesday, gained 52 bps on Tuesday, and dropped 2 bps on Monday.

The index shaved off a cumulative 25 bps on the week last week.

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