Toys ’18 paper jumps on Asia IPO talk; Bombardier flies on Airbus deal news; hospitals continue rebound

By Paul Deckelman

New York, Oct. 16 – Distressed-debt traders said that activity in some recently pressured topical names was the big feature in Tuesday’s market, even overshadowing primaryside activity in the larger high-yield bond arena.

They said that Toys ‘R’Us, Inc. was the big winner on the day, particularly its recently battered 2018 notes, which zoomed by some 15 points on news reports the retailer – currently restructuring under Chapter 11 – may do an initial public offering for its burgeoning Asian business, which is not covered by the bankruptcy filing.

Bombardier Inc.’s several issues of notes dominated the day’s Most Actives list, firming solidly on the news that the Canadian aircraft manufacturer –whose bonds were recently in retreat on a threat by the United States Commerce Department to slap heavy tariffs on its new C-Series jets to be sold to U.S.-based carriers such as Delta Air Lines – will sell a majority stake in its C-Series operation to European aerospace giant Airbus; that transaction may also get around that tariff threat since Airbus plans to actually do the final assembly work on planes to be sold in the U.S. at its existing facility in Alabama.

And hospital names like Community Health Systems, Inc., Tenet Healthcare Corp. and HCA Inc. continued to bounce back from the losses the sector suffered late last week on the prospect of changes to the Affordable Care Act in the U.S.

Toys ‘R’ Us trades terrifically

Toys ‘R’ Us’ 7 3/8% notes due 2018 were the clear price-change leaders on the day, traders said, seeing those notes jump as much as 15 points on the day to around the 43 bid level from prior levels around 28.

More than $26 million of those notes changed hands.

The traders cited news reports indicating that the privately held Wayne, N.J.-based retailer of toys, games and other children’s products – and through a separate division, baby and toddler products – was looking into the possibility of raising capital via an initial public offering for its rapidly growing Asian unit.

The company’s U.S. operations – faced with the double whammy of intense competition in the brick-and-mortar space from Wal-Mart Corp. and losing market share to internet retailing giant Amazon.com – recently filed for Chapter 11 protection. The Asian unit was not part of that bankruptcy filing – but analysts say that the Chapter 11 proceedings could somewhat tarnish the luster of the Asian operation and make an IPO at this time more difficult.

Hospitals continue comeback

For a second consecutive session, traders said that the recently beleaguered hospitals sector was trading better, bouncing back from the distress investors saw last week amid news of Trump Administration changes in the Affordable Care Act, popularly known as Obamacare.

Franklin, Tenn.-based Community Health Systems’ 6 7/8% notes due 2022 “were active today.” A trader said, generating more than $30 million of volume and shooting up by just under 2 points, to 76 bid.

Dallas-based Tenet Healthcare Corp.’s 8 1/8% notes due 2022 ended at 101 bid, up 1 5/8 points on the session, with more than $17 million of volume, while Nashville-based HCA’s 5 7/8% notes due 2026 edged up by ¼ point, to 105¾ bid, with more than $15 million having traded.

Bombardier flies on Airbus deal

A trader said that Bombardier Inc.’s bonds “were up anywhere from 4 to 6 points across their [capital] structure.

“The whole structure traded on pretty big volume.”

In fact, the Montreal-based aircraft manufacturer’s bonds held down most of the top spots on the day’s Most Actives list, a market source said, with its 8¾% notes due 2021 the busiest of the bunch, with over $62 million having changed hands on the session. They finished up 6 points on the day at 113½ bid.

The source also saw the company’s 7½% notes due 2025 up nearly 6½ points, ending at just under 107 bid, with over $41 million having traded.

Its 6% notes due 2022 were seen going out around the 102 bid level, up 5¾ points on the day, with more than $37 million of turnover, while the company’s 6 1/8% notes due 2023 jumped 6½ points to 103 bid, on volume of more than $33 million.

Bombardier’s bonds headed for the wild blue yonder after the company announced that it had agreed to take pan-European aerospace giant Airbus on as a partner in its development of its new C-Series 150-passenger jets.

Under the terms of the complex deal announced on Tuesday, Airbus will own slightly more than half of the C-Series development unit, with Bombardier to hold 31% and the Province of Quebec to have a 19% stake. Currently, Bombardier owns 62% of the operation and Quebec has 38%.

The parties did not make available the estimated value of the Airbus investment in the C-Series business – other than to say that at the closing there would be “no cash contribution from any of the partners.”

However, they did say that having the deep-pocketed European aerospace giant on board would be “a win-win situation for all the parties involved – for Airbus, for Bombardier and for Quebec.

As part of the announcement, Airbus said that it would establish a new assembly line for the C-Series planes at its existing aircraft factory in Mobile, Ala., where it currently builds some of its own aircraft models.

The move is seen as a likely way around the recent U.S. Commerce Department threat to slap tariffs of as much as 300% on any C-Series planes made in Canada for sale to U.S.-based air carriers such as Delta Air Lines, which is scheduled to purchase at least 75 of the C-Series jets over the next few years.

Commerce recently announced the tariffs after domestic airline manufacturer Boeing complained that the more than $1 billion invested in Bombardier several years ago by the Quebec government, and additional aid it receives from Britain’s government for its manufacturing facility in Northern Ireland, constitute an improper subsidy of Bombardier’s aircraft production and thus, an unfair trade practice.

Bombardier’s bonds and shares retreated on news of the tariff, although they regained some of that lost ground days later when Delta’s chief executive officer, Edward H. Bastian, said during that company’s earnings conference call that Delta expects to take possession of the C-Series planes – but not pay the hefty tariff.

© 2015 Prospect News.
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