Mercer on deck; California Resources down again; Altice, Intelsat, McDermott gain

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 28 – While new deal activity in the domestic and European primary market remained muted on Wednesday there was some action.

In the European market, Algeco Global Finance plc priced €125 million of add-ons to both tranches of its senior secured notes due 2023 (existing ratings B2/B-/B+).

Cognita is on deck with a €255.3 million offering of eight-year senior notes, which could price on Thursday.

In the domestic market, Mercer International Inc. plans to price $350 million of senior notes due Jan. 15, 2025 (current ratings Ba3/BB-) on Thursday.

Meanwhile, the secondary space firmed on Wednesday with the market up more than ½ point, sources said.

The rally jumpstarted trading activity with higher volume on Wednesday than in previous sessions, a market source said.

However, the energy sector remained under pressure with crude oil futures again sliding.

California Resources Corp.’s 8% senior secured second-lien notes due December 2022 were again the most actively traded issue in the secondary space with the notes dropping 1¼ points.

While crude oil futures continued their downward trend, several names posted gains on Wednesday.

Altice SA’s junk bonds remained in focus but reversed course with several issues that had previously traded down jumping more than 2 points.

Intelsat Jackson Holdings SA’s junk bonds also jumped 2 points in intraday trading, a market source said.

McDermott International Inc.’s 10 5/8% senior notes due 2024 (B2/B-) jumped more than 3.5 points on Wednesday.

While the notes pared some of their losses, they are still about 15 points below their level at October’s close.

Algeco prices tap

In a Wednesday session that generated a meager amount of new issue news, Algeco Global Finance priced €125 million of add-ons to both tranches of its senior secured notes due 2023 (existing ratings B2/B-/B+).

The deal, which saw €15 million of proceeds shifted to the floating-rate tranche from the fixed-rate tranche, featured a downsized €85 million add-on to the 6½% fixed-rate notes which priced at 98.25 to yield 6.98%.

The tranche size was decreased from €100 million. The reoffer price came in the middle of the 98 to 98.5 price talk.

Algeco Global also priced an upsized €40 million tranche of Euribor plus 625 basis points floating-rate notes at 98.5. The amount was increased from €25 million.

The reoffer price came at the wide end of price talk which had also been set at 98 to 98.5.

Goldman Sachs was bookrunner for the debt refinancing and general corporate purposes deal.

Cognita on deck

Cognita could price €255.3 million of eight-year senior notes as early as Thursday, according to a London-based sellside source.

An investor roadshow for the deal was expected to wrap up on Wednesday.

Left lead bookrunner Barclays will bill and deliver. BofA Merrill Lynch, Goldman Sachs International and KKR Capital Markets are the joint bookrunners.

The issuing entity will be special-purpose vehicle Lernen Bondco plc, which will use the proceeds to repay the bridge loan used to fund the acquisition of Cognita by Jacobs Holding from Bregal Investments and KKR.

With the final week of November winding down, it is possible, although by no means certain, that European high-yield issuance has all but run its course for 2018, a London-based senior syndicate official conceded on Wednesday.

Given high-yield market conditions rendered difficult by rising rates and depressed oil prices, in addition to other troubles in Europe including Brexit and worries about Italian sovereign debt, it is a reasonable assumption that the market year will wrap up at the conclusion of the second week of December, the banker said.

Issuers will understandably be hesitant to enter the market through that brief December issuance window because conditions in the new year may be more favorable and are at least unlikely to be much worse than the present ones, the banker said.

There are committed financings to execute, but the timelines on those deals does not preclude them from being forestalled into the new year, the source added.

Mercer deal backing acquisition

The dollar-denominated primary market generated an even leaner news flow on Wednesday.

Mercer International disclosed plans to price a $350 million offering of senior notes due Jan. 15, 2025 (current ratings Ba3/BB-) on Thursday.

The offer was scheduled to be marketed by means of a late Wednesday morning conference call with investors.

Credit Suisse is the left bookrunner. Barclays and RBC are the joint bookrunners.

The Vancouver, B.C.-based pulp producer plans to use the proceeds to fund its acquisition of Daishowa-Marubeni International Ltd., a Canadian forest products company.

Energy down again

While equity markets rebounded on Wednesday and the secondary space firmed, crude oil futures continued to plummet, dragging down energy names.

California Resources’ 8% senior notes due 2022 continued their downward momentum and dropped 1¼ points in high-volume activity, a market source said.

The notes were quoted at 77¼ bid, 78 offered and closed the day at 77¾, sources said. More than $60 million bonds traded during Wednesday’s session.

The notes have been major volume movers in the secondary space as crude oil futures have cratered throughout October and November.

The barrel price of WTI crude oil for January delivery again plummeted on Wednesday to settle at $50.29, a decrease of $1.27 or 2.46%.

Crude oil futures have steadily traded down amid concerns about oversupply.

The Energy Information Administration reported Wednesday that domestic crude oil inventories rose by 3.6 million barrels versus analyst expectations of an increase of 500,000 barrels, MarketWatch reported.

Altice reverses course

Altice’s junk bonds remained major volume movers on Wednesday although the notes reversed course with several issues posting large gains.

Altice France’s 8 1/8% senior notes due 2027 gained 1¾ points to close Wednesday at 97 1/8, a market source said.

More than $40 million of the bonds were on the tape by the late afternoon.

The notes were also active on Tuesday. While they were up 1 point early in the session, they closed Tuesday down ¼ point at 95 3/8.

Altice France’s 7 3/8% senior notes due 2026 were up 2½ points to close the day at 95½. More than $20 million of the bonds were in play during Wednesday’s session.

The 7 3/8% notes were also active on Tuesday but traded down 5/8 point.

Altice Financing’s 7½% senior notes due 2026 jumped 2¼ points to close Wednesday at 94¼. More than $20 million of the bonds were on the tape by the late afternoon.

Altice SA’s 7¾% senior notes due 2022 were up 2¾ points to close the day at 93¼. More than $18 million bonds were in play during Wednesday’s session.

Altice junk bonds have been major volume movers in the secondary space since Altice Europe NV reported earnings last week.

While the company reported a decrease in adjusted EBITDA and revenue, it also reported an increase in customers in France and anticipated future growth.

Intelsat gains

Intelsat Jackson Holdings’ junk bonds were also major volume movers on Wednesday with the notes posting gains.

While the notes climbed as much as 2 points in intraday trading, they came in as the session progressed to close the day up about 1.5 points, a market source said.

Intelsat Jackson’s 8½% senior notes due 2024 closed Wednesday at par 3/8. More than $35 million of the bonds were on the tape by the late afternoon.

Wednesday marked the first time the 8½% notes have traded above par since early November.

Intelsat Jackson’s 9¾% senior notes due 2025 closed Wednesday at 104 5/8. More than $32 million of the bonds were on the tape by the late afternoon.

There was no headline news attributed to the price movement although market players were combing through Bloomberg searching for news, a market source said. Search queries for Intelsat were higher than normal, the source said.

Sources were doubtful that headline news had much of an impact on Intelsat’s trading volume or price movements.

“This is a big dealer name,” a market source said. When the bonds rise, larger desks will short them and then buy them back when they fall.

“That’s what they do when they’re bored,” the source said.

McDermott pares losses

McDermott’s 10 5/8% senior notes due 2024 were again active on Wednesday with the notes jumping almost 4 points, a market source said.

The notes rose to close the day at 85¼ with more than $21 million of the bonds on the tape, a market source said.

The jump came after McDermott was awarded a contract by Shell to install a subsea flowline installation in the Gulf of Mexico.

The contract was “sizable,” the company said, adding that it defined “sizable” as between $1 million and $50 million. It will be recorded in the company’s fourth-quarter backlog.

While the 10 5/8% notes pared some of their losses on Wednesday, they are still well below their level prior to their third-quarter earnings report.

The notes were “destroyed” after the company reported third-quarter earnings and the divestiture from one of its business segments on Oct. 31, a market source said.

They were previously trading around par ½.

Tuesday outflows

The daily cash flows of dedicated high-yield bond funds was negative on Tuesday, the most recent session for which data was available at press time, according to a trader.

High-yield ETFs sustained $180 million of outflows on the day.

Actively managed high-yield funds saw $70 million of outflows on Tuesday, the source added.

The combined high-yield funds were tracking $841 of outflows during the period starting at last Thursday's open until the Tuesday close, the source said.

Away from junk, dedicated leveraged loan funds also sustained a sizable $325 million of daily outflows on Tuesday, including $123 million which flowed from bank loan ETFs, the trader said.

Indexes gain

Indexes returned to the green on Wednesday after a mixed day on Tuesday.

The KDP High Yield Daily index was up 7 basis points to close Wednesday at 68.17 with the yield now 6.65%.

The index dropped 4 bps on Tuesday and 2 bps on Monday after a 32 bps drop on the week last week.

The ICE BofAML US High Yield index gained 32.8 bps on Wednesday with the year-to-date return now negative 0.214%.

The index dropped 18.6 bps on Tuesday after a 12.5 bps gain on Monday.

The index was down 26.5 bps on the week last week.

Returns entered into negative territory for the first time since June on Nov. 15.

The CDX High Yield 30 index jumped 101 bps to close Wednesday at 104.79. The index gained 15 bps on Tuesday and was up 20.12 bps on Monday after a 74 bps drop on the week last week.

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