Millicom prices; TransDigm rises on acquisition; energy mixed; Teva Pharaceutical improves

By James McCandless and Paul A Harris

San Antonio, Oct. 11 – The high-yield new issue market continued to operate on Thursday with Millicom International Cellular SA pricing $500 million of eight-year senior notes, while secondary market saw a mixed day against an overarching selloff bearing down from the equity market.

Millicom, a Luxembourg-based telecom that operates in Latin America and Africa, priced the notes at par to yield 6 5/8%.

Italian pharmaceutical firm Recordati SpA expects to price €1.28 billion of seven-year senior secured notes in two tranches on Friday.

Uber Technologies Inc. plans to sell $1.5 billion of high yield notes in two tranches.

In the secondary market, TransDigm Inc.’s notes gained after the company announced that it would be acquiring competitor Esterline Technologies Corp., which resulted in a decline in Bombardier Inc.’s issues.

In the energy space, California Resources Corp.’s paper declined as Petroleo Brasileiro SA saw mixed results.

Elsewhere, Teva Pharmaceutical Industries Ltd.’s notes improved in the medical sector.

Millicom tight to final talk

In the face of what market sources were characterizing as extreme volatility, the high-yield new issue market continued to operate on Thursday.

Luxembourg-based telecom Millicom International Cellular SA, which operates in Latin America and Africa, priced a $500 million issue of eight-year senior notes (Ba2//BB+) at par to yield 6 5/8%.

The yield printed at the tight end of the 6 5/8% to 6¾% final yield talk and tight to earlier talk in the 6 7/8% area.

The yield came at the wide end of initial guidance in the mid 6% area, a trader said.

Joint bookrunner BNP Paribas will bill and deliver. Goldman Sachs International, JPMorgan and Scotia were also joint bookrunners.

Despite being a dollar-denominated junk-rated issue the notes are not expected to be traded on the high-yield desk, a New York-based trader said.

Proceeds will be used to help fund Millicom’s acquisition of an 80% stake in Panama-based company Cable Onda.

Recordati expected Friday

With Millicom clearing the market, the active forward calendar features just one deal expected to price before the coming weekend.

Italian pharmaceutical firm Recordati SpA expects to price €1.28 billion of seven-year senior secured notes (expected ratings B2/B) in two tranches on Friday.

The deal features a tranche of fixed-rate notes coming with initial guidance that widened to 6½% to 6¾% from earlier guidance of 6% to 6½%.

Guidance on a tranche of floating-rate notes remains to be announced, and tranche sizes remain to be determined.

Uber, private placement-style

Uber Technologies Inc. plans to sell $1.5 billion of high yield notes in two tranches.

The deal is expected to price during the Oct. 15 week.

Although the market anticipates the bonds will come with “triple hooks” – triple C ratings from both Moody's Investors Service and S&P Global Ratings – there is a possibility that S&P will come with a B- rating, instead, a trader said Thursday.

Despite the deal size and the anticipated ratings, the notes are being marketed private placement-style, with the dealer circling up select accounts, sources say. Offering documents have not been widely circulated, and dealer updates have not been forthcoming.

The deal includes a $500 million tranche of five-year notes, which come with two years of call protection, and are in the market with initial talk in the 7½% area, and a $1 billion tranche of eight-year notes with three years of call protection and initial talk in the 8% area.

The close-to-the-vest execution notwithstanding, the deal is heard to being going well, and is expected to come upsized, with both tranches eventually pricing tighter than the initial guidance.

Word in the market is that it will ultimately be taken down by a handful of accounts, a trader said on Thursday.

Morgan Stanley is leading the offer.

In part, Uber's novel execution is being chalked up to the San Francisco-based ridesharing company's unorthodox manner of doing business, source say.

$4.928 billion outflows

The dedicated high-yield bond funds sustained $4.928 billion of outflows in the week to Wednesday's close, according to information that Lipper US Fund Flows posted Thursday on its web site.

Despite being $300 million to $400 million less than the market had been anticipating, it is nonetheless the third largest outflow on record and the second largest of 2018 sources say.

The largest weekly outflow on record was $7.1 billion, seen in the week to Aug. 6, 2014, a trader said, adding that the second-largest was a $6.3 billion outflow seen in the week to Feb. 14, 2018.

The lion's share of the cash that flowed from the dedicated junk funds in the past week was extracted from the high-yield ETFs, which posted record outflows in the week to Wednesday's close. They included a record $1.6 billion outflow on Tuesday and $1.43 billion last Friday, a record that stood until the Tuesday outflow.

On Wednesday, the most recent session for which data was available at press time, the ETFs saw a comparatively moderate $248 million of outflows. Actively managed high-yield funds saw $10 million of inflows on Wednesday.

TransDigm rises

TransDigm’s notes rose in the secondary, traders said.

The 6% notes due 2022 rose about 1 point to close at around 101 bid.

The Cleveland-based aircraft component manufacturer announced Thursday morning that it would purchase competitor Esterline Technologies Corp. in a $4 billion cash deal.

The move sparked a decline in the sector, namely in Bombardier.

The Montreal-based company’s 6 1/8% notes due 2023 lost about ¼ point to close at 98¾ bid.

“Bombardier loses a lot of pricing power against the new entity,” a trader said. “TransDigm is known for making a lot of niche products in the aircraft market.”

Energy lower

A further drop in oil futures led to bellwether oil and gas names declining, market sources said.

Los Angeles-based independent oil and gas producer California Resources Corp. paper lost in the session.

The 6% notes due 2024 dropped 1 point to close at 87 bid. The 8% notes due 2022 shaved off about 4¼ points to close at around 93¾ bid.

On the international side, Petrobras’ 5.999% paper due 2028 lost about ¾ point to close at around 94¾ bid. The 7 3/8% paper due 2027 added about 1 point to close at around 103½ bid.

The energy sector was a large part of Thursday’s selloff as the Energy Information Agency reported a 6 million barrel increase in the U.S. crude oil supply, surpassing analyst expectations.

At the end of the session, West Texas Intermediate crude futures ended lower by $2.20 at $70.97 per barrel. North Sea Brent crude oil futures lost $2.83, ending at $80.26 per barrel.

Teva up

In the medical space, Teva saw an improvement, traders said.

The 6% notes due 2024 rose about ¾ point to close at around 99¾ bid.

The company’s notes have taken a negative trend since Sept. 17 despite the company’s announcement that day that the FDA had approved a new migraine drug, sending its common stock soaring.

Indexes mixed

Three high-yield benchmarks varied in direction in Thursday’s session.

The KDP High Yield Daily index lost 11 basis points to close at 69.88 at Thursday’s close with the yield at 6.02%

The index lengthened a negative streak, having lost 18 basis points on Wednesday, 21 bps on Tuesday and 16 bps on Friday.

The ICE BofAML US High Yield index saw a small gain to break a run of large declines Thursday. The index picked up 0.7 bps with the year-to-date return now at 1.411%.

The index lost 36 bps on Wednesday and 30.9 bps on Tuesday.

The CDX High Yield 30 index gained 22.3 bps to close Thursday at 106.185.

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