Primary pause continues, early Sept. rebound seen; Constellium, other aluminum names gain; Intelsat jumps

By Paul Deckelman and Paul A. Harris

New York, Aug. 30 – For yet another day, the high yield primary market stood stock still on Tuesday, letting the long pre-Labor Day holiday lull continue winding down.

But with the holiday break fast approaching, some primaryside sources were talking up the notion that the return of new-deal activity to Junkbondland might come earlier in September than initially thought, as issuers look to do their deals before the Federal Reserve pulls the trigger on an expected interest rate hike.

Away from the lack of new-deal activity on the session, market sources saw some activity in the bonds of aluminum products producer Constellium NV, apparently given a boost by the news that sector peer Aleris Corp. is being acquired. That company’s own paper meantime continued to firm, though on limited volume.

Traders saw sizable gains in one of Intelsat SA’s issues, on the news that the communications satellite company will exchange new notes for those existing bonds.

Statistical market performance measures turned mixed on Tuesday, after having been higher all around on Monday, which had followed three straight mixed sessions at the end of last week.

Ahead of the Fed

The primary market remained becalmed on Tuesday.

However September could bring a big pickup on the new deal calendar, as sources are looking for a $25 billion month.

And it could be a front-loaded month, a syndicate banker said on Tuesday.

The new deal wagon could get rolling during the post-Labor Day week, because there is a distinct possibility that the Sept. 20-21 meetings of the Fed's Federal Open Market Committee could generate an increase in the Fed Funds rate, the banker said.

Chances for a hike are presently seen as 40%, up from 22% before the recent Fed conference in Jackson Hole, Wyoming, according to the source.

“With the Fed back in plan issuers will likely want to get in the market ahead of the September meetings,” the banker said.

Funds see Monday inflows

The daily cash flows of the dedicated high yield bond funds remained positive on Monday, the most recent session for which data was available at press time, according to a portfolio manager.

High yield ETFs saw $12 million of inflows on the day.

Asset managers saw $50 million of inflows on Monday.

Aluminum names improved

With the new-issue realm “quiet all week,” as a trader said, heading into the Labor Day holiday break – which begins with this coming Friday’s abbreviated session and continues with next Monday’s full market close – junk bond players have been looking elsewhere for action.

And on Tuesday, they found some in the bonds of companies that make products out of aluminum.

Netherland-based Constellium NV’s 8% notes due 2023 “were up between 2 and 3 points on the day,” a trader said, seeing those bonds get as good as 103 bid, up from recent levels around 100 1/8 bid.

Another market source saw the bonds come off that peak level to still finish up 2 5/8 points on the day at 102 bid, with about $5 million traded – a fair amount of volume for a generally sleepy session, he said.

The company’s 7 7/8% notes due 2021 were meantime up 1¼ point on the day, finishing at 108½ bid, with around $4 million having changed hands.

Its 5¾% notes due 2024 were ½ point better at 93 bid, with some $2 million having traded in round lots.

The Constellium paper was seen to have gotten a boost from the news, announced on Monday, that sector peer Aleris Corp., has agreed to be acquired by Zhongwang USA, a subsidiary of Hong Kong-based aluminum products producer China Zhongwang, in a transaction valued at $2.23 billion, including debt assumption.

That news had pushed Beachwood, Ohio-based Aleris’ own Aleris International, Inc. ‘s 7 7/8% senior notes due 2020 up to 102¼ bid on Monday from last week’s levels around 99½, on round [lot volume of around $2 million.

On Tuesday, those bonds firmed another ½ point or so to 103 bid, but only on one large-sized trade.

The company’s 9½% senior secured notes due 2021 moved up on Tuesday to 109¾ bid, up 1½ points from recent levels north of 108, but only on volume of around $2 million.

A trader noted that the latter bonds can only be taken out via a make-whole call at a price of around 117 – but said “I don’t know how that’s going to work – whether the bonds will be taken out or whether they’ll just stay outstanding.”

The 7 7/8s, meantime, are currently callable at 105.906, although that call price is scheduled to decline to 103.938 on Nov. 1.

The aluminum-products sector has recently seen some action in the junk space, with another company in that industry, Novelis Corp., having priced $1.15 billion 6¼% notes due 2024 at par in quick-to-market offering Aug. 15.

On Tuesday, those bonds – which have been firming smartly ever since they made their market debut – continued to gain ground, rising by 3/8 point to 104¼ bid, on v9olume of over $5 million.

Intelsat up on note swap offer

Away from the recent deals, traders said that there was some activity in Intelsat SA paper, on the news that the company had launched a private exchange offer for its remaining outstanding Intelsat Jackson Holdings SA 6 5/8% notes due 2022.

A trader said that the paper jumped as much as 15 points during the session to trade as high as 87 bid. At another desk, a market source said the 6 5/8% notes were up 12½ points at 86 bid.

“It’s a nice deal for them,” the first trader remarked, as holders who participate in the exchange by the early deadline of 11:59 p.m. ET on Sept. 12 will receive $705 of new 8% notes due 2024 plus $120 in cash.

After the early deadline, holders will receive the same amount of new notes and $100 in cash.

However, the trader noted that the company only has $141.798 million of those notes still outstanding, following a successful tender offer last month and various other purchases before that which took out most of the issue, “so it’s not like there is a lot of it,” he said.

In May, Intelsat had announced that it would tender for a portion of three series of its Intelsat Jackson paper – the $815.25 million of 6 5/8% notes then outstanding, as well as two other series, the 5½% notes due 2023 and 7½% notes due 2021, with the 6 5/8% notes having the first priority of acceptance.

It announced on July 15 that holders had oversubscribed the tender offer, submitting $757.978 million of the 6 5/8% notes to the company, which accepted $673.454 million for purchase on a pro rata basis at the discounted price of $687.50 per each $1,000 principal amount of notes for a total amount of $463 million.

Because the 6 5/8% first-priority issue been oversubscribed, the company did not accept for purchase any of the two other note series that holders submitted.

The current exchange offer is the company’s final step in extinguishing the last of the 6 5/8% notes.

On May 11, – the day before it announced its tender offer – Intelsat had said in a Securities and Exchange Commission filing that it had already repurchased some $459.748 million of the 6 5/8% notes since April 28, the date of its most recent quarterly report, via a combination of open market and privately negotiated purchases at varying discounts to par.

Apart from the Intelsat Jackson paper, a trader also pointed out that the company’s Intelsat (Luxembourg) “Luxco” paper – such as its 7¾% notes due 2021 – moved up a point to trade “around 30.”

The exchange announcement came just one day after the Luxembourg-based commercial satellite services provider said that talks regarding a debt swap with holders of its 6¾% notes due 2018 had broken down.

Indicators turn mixed

Statistical market performance measures turned mixed on Tuesday, after having been higher all around on Monday, which had followed three straight mixed sessions at the end of last week.

The KDP High Yield index rose by 4 basis points on Tuesday to end at 70.65, its third straight gain and its fifth upturn over the last six sessions, including Monday’s 15-bp jump.

Early in the session, the index had firmed smartly to hit an intraday high of 70.73, a new year-to-date and 52-week high point.

Its close at 70.65 was its third straight new closing year-to-date and 52-week peak level, surpassing the former market of 70.61 which had been set on Monday.

Its yield came in by 3 bps on Tuesday to 5.20%, after having been unchanged at 5.23% on Monday. The yield had declined by 1 bp on Friday, and Tuesday’s narrowing was thus its second in the last three sessions.

But the recently choppy Markit Series 26 CDX index lost nearly 1/16 point on Tuesday to finish at 104 21/32 bid, 104 11/16 offered, its second retreat in the last three sessions. On Monday, it had gained 3/16 point.

The Merrill Lynch High Yield index was up for a third successive session on Tuesday, improving by 0.095%, on top of Monday’s 0.066% rise and Friday’s 0.057% improvement, which had followed Thursday’s 0.024% loss – the index’s first downturn since Aug. 2, snapping a 16-session winning streak.

Tuesday’s move brought the index’s year-to-date return up to 14.651% – its third straight new year-to-date high for the year, surpassing the old zenith of 14.542%, which had been set on Monday.

Stephanie N. Rotondo contributed to this review.

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