Fantasia plunges by nearly half after downgrades; China Evergrande declines; Talen flat

By Cristal Cody

Tupelo, Miss., Oct. 5 – Fantasia Holdings Group Co. Ltd.’s bonds slid further into distressed secondary trading on Tuesday following downgrades by the three major ratings agencies after a missed bond payment.

Fantasia’s 10 7/8% senior notes due 2023 (CC/C) traded at nearly half of where it was seen in the prior week.

The downgrades follow the company’s failure to repay the principal on $206 million of senior notes due Monday and disclosure of a missed payment on a private bond as well, according to Moody’s Investors Service, S&P Global Ratings and Fitch Ratings.

China Evergrande Group’s dollar notes also remained pressured on Tuesday while the company is in a 30-day grace period after missing a bond payment last month.

“Not only are Fantasia’s bonds now trading at the same distressed levels as Evergrande’s, but the new disclosure has the potential to further scare investors about other Chinese property developers and China’s broader problem with excess debt,” according to a Confluence Investment Management note on Tuesday.

Energy bonds stayed mostly stronger on Tuesday as oil rallied a second day after OPEC and participating non-OPEC oil producing countries confirmed that oil production will be increased by 400,000 barrels a day in November.

West Texas Intermediate crude oil benchmark futures for November deliveries settled the day $1.31 higher at $78.93 a barrel.

Talen Energy Supply LLC’s bonds were steady after gaining on Monday.

Fantasia sinks

Fantasia’s 10 7/8% senior notes due 2023 (CC/C) opened the day at 19 bid and traded by the close at 18½ bid, a source said.

The notes were last seen in the prior week down about 8½ points on the week at the 32 3/8 bid area.

Moody’s said Tuesday it downgraded Fantasia to Ca from B3 and its senior ratings to C from Caa1 following the company’s announcement that it missed the payment on its bond due on Monday.

S&P also on Tuesday downgraded Fantasia to SD from CCC, its senior notes due Monday to D from CCC and its other senior notes to CC from CCC.

S&P noted that Fantasia’s failure to repay the principal on the issue due Monday will likely trigger cross defaults in the company’s other bonds, including about $554 million of notes due Dec. 18.

On Monday, Fitch lowered Fantasia to RD from CCC- due to the missed note payment.

The China-based property developer has a large amount of capital market debt due through the end of 2022, including $1.9 billion of offshore bonds, Fitch said.

Evergrande declines

China Evergrande’s 8¾% senior notes due 2025 (C/C/C) dropped about 2¼ points to 21¾ bid in the secondary space on Tuesday, a source said.

The bonds held steady on Monday at 24 bid after trading mostly flat on Friday.

The Shenzhen, China-based real estate developer has entered into a 30-day grace period following missed bond payments.

Talen notes flat

In other distressed issues, Talen’s 10½% senior notes due 2026 (B3/CCC/B-) headed out flat at 55 bid after the issue gained 1 point in Monday’s session, a source said.

The Woodlands, Tex., and Allentown, Pa.-based power company announced in September that a subsidiary secured up to a $175 million strategic capital partnership with Orion Energy Partners.

Distressed returns up

Distressed index returns improved at the start of the first full week of October.

The S&P U.S. High Yield Corporate Distressed Bond index total returns on Monday were 0.1%, up from minus 0.69% on Friday.

Month-to-date total return declines narrowed to minus 0.6% on Monday from minus 0.69% on the first day of the month.

Year-to-date total returns totaled 29.45% versus 29.32% on Friday.

The iShares iBoxx High Yield Corporate Bond ETF ended 4 cents lower at $87.06 after declining 31 cents on Monday.

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