Junk: First Quantum under pressure as Panamanian mine ceases ops; Solenis active post-earnings

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 28 – The junk bond space put in a strong session on Tuesday as Treasury yields tumbled on dovish comments from Federal Reserve officials, a source said.

The cash bond market added ¼ point with ETF buying lifting the broader market.

The secondary space has had a spectacular rally since the Consumer Price Index print in mid-November with the debate about future rate increases coming to an end.

However, the market is now anticipating rate cuts in the coming year, which may be premature, or may be necessitated by a recession the market has not priced in, sources warn.

While a strong session, trading activity was muted as market players await the primary market to reactivate.

Earnings and topical news remained the drivers of activity in the space during Tuesday’s session.

First Quantum Minerals Ltd.’s senior notes were again under pressure after the company suspended operation of its Panamanian mine due to growing civil and legal challenges.

Olympus Water US Holding Corp.’s (Solenis) 9¾% senior secured notes due 2028 (B3/B-) continued to trade at all-time highs in the wake of another positive earnings report.

Primary market

The primary market failed to generate news on Tuesday, with just one dollar-denominated offering on the active forward calendar.

Summit Materials, LLC and Summit Materials Finance Corp. are shopping an $800 million offering of seven-year senior notes (Ba3/BB).

The deal, which was announced Monday, is in the market with initial guidance in the high-7% to 8% area, and is playing to $2 billion of interest, a trader said, adding that the bonds might price Wednesday.

More deal announcements are anticipated in the near-term, sources say.

Clients are hearing that J.P. Morgan Securities LLC is primed to announce a pair of deals later this week, the trader said.

Before Thanksgiving a syndicate banker forecast a possible additional $10 billion of new dollar-denominated issuance in the runup to 2024.

However, sources roundabout the market are straining to see that level of issuance volume coming ahead of the late-year holidays.

In some years the month of December sees a general migration of investors to the sidelines, in an effort to lock in returns realized during the preceding 11 months.

That’s unlikely to be the case in December 2023, according to an investor who pointed to a big burst of cash, last week, into a high-yield ETF.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) saw $1 billion of inflows last week, the investor said, adding that it suggests that the 2023 primary market could still have some room left to run.

Part of those inflows could reflect attempts by managers to put cash to work in the asset class by means of buying the ETF, the investor said.

First Quantum under pressure

First Quantum’s senior notes were again under pressure after a minor reprieve during previous sessions with the company announcing that it was suspending its mining operations in Panama in the face of growing civil and legal challenges.

The company’s beleaguered 8 5/8% senior notes due 2031 (/B+) sank more than 2 points in intraday activity before recouping some losses into the market close.

The notes traded to a new all-time low of 77½ before closing the day in the 78½ to 79½ context, a source said.

The yield was about 13%.

First Quantum priced the $1.3 billion issue at par in May.

The notes have been the worst performing deal of 2023 with the majority of losses occurring since late October when the future of the company’s Panamanian mine came into question.

First Quantum’s 6 7/8% senior notes due 2027 were down almost 4 points in intraday activity before also paring losses into the close.

The 6 7/8% notes dropped as low as 77 as news that operations at the Panamanian mine had ceased.

However, they narrowed their losses to close the day largely unchanged in the 80¼ to 80¾ context, a source said.

The yield was about 13½%.

First Quantum announced early Tuesday that it was suspending operations at its Panamanian mine due to a blockade at the port that was preventing the delivery of supplies.

However, later on Tuesday, Panama’s Supreme Court ruled that First Quantum’s mining contract was unconstitutional.

The headlines circulating the market late Tuesday was a vow from the Panamanian president to shut down the mine.

First Quantum’s Panamanian copper mine is its largest asset.

While there were contentious contract negotiations with the government, Panama awarded First Quantum a new 20-year contract in mid-October.

However, the president later called for a citizen’s vote on the contract in response to mass protests.

Solenis’ earnings

Solenis’ 9¾% senior secured notes due 2028 continued to trade at an all-time high after positing better-than-expected earnings.

The 9¾% notes were changing hands in the 102¾ to 103¼ context in active trade, according to a market source.

The level marked a new high for the notes after claiming the same title the previous session in anticipation of a positive earnings report.

In its second earnings report since completing its acquisition of Diversey, Solenis again bested expectations with EBITDA up 14% year over year, a source said.

Solenis priced a $1.7 billion tranche of the 9¾% notes in May with proceeds used to fund its acquisition of hygiene, infection prevention and cleaning solutions company Diversey.

The 9¾% notes have been volatile in aftermarket activity since pricing.

While their previous earnings report in August was also better than expected, the notes have spent most of their life underwater.

However, they rallied alongside the broader market in mid-November and closed the previous week on a 102-handle.

Fund flows

High-yield ETFs had $212 million of daily cash inflows on Monday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds sustained $26 million of outflows on the day, the source said.

Indexes

The KDP High Yield Daily index added 9 basis points to close Tuesday at 49.11 with the yield 7.51%.

The index was flat on Monday.

The ICE BofAML US High Yield index added 29.9 bps with the year-to-date return now 8.826%.

The index was up 21.3 bps on Monday.

The CDX High Yield 30 index added 11 bps to close Tuesday at 103.76.

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