Preholiday domestic primary silent; Greece’s OTE prices; Abengoa off after solvency filing

By Paul Deckelman

New York, Nov. 25 – The high-yield market, as expected, saw a quiet pre-holiday session on Wednesday, heading into Thursday’s Thanksgiving Day holiday, which will see fixed-income markets in the United States closed in observance.

The domestic primary market remained shuttered, with no news heard having emerged during the session.

The only news came out of Europe, where Hellenic Telecommunications Organization SA priced an upsized €350 million of new four-year notes. The new bonds came at a discount to par, but the yield on the oversubscribed issue was in from its original price talk.

Away from that, new-deal activity was nil.

Back in the domestic dollar-denominated junk market, traders said that volume was light but that the overall market tone was slightly on the positive side.

This week’s only dollar-denominated new deal, Monday’s issue of five-year notes from builder M/I Homes, Inc., was unchanged on the day, with just a couple of large-sized trades.

Volume was also light in such recent new deals as Equinix, Inc., Constellation Brands, Inc. and LifePoint Health, Inc.

The attention of many of those players who were even in during the session was turned to Abengoa SA, whose notes fell sharply in moderately busy dealings after the Spanish industrial and technology company announced its intention to file for protection from its creditors after a planned investment in Abengoa by another company fell apart.

Statistical measures of junk market performance turned higher across the board on Wednesday after having been lower all around during the previous two sessions. It was the indicators’ first upside session since Nov. 17 and their second such session in the last seven trading days.

Domestic primary stilled

For a second consecutive session, the dollar-denominated side of the junk bond primary market was not heard from in terms of any new-deal announcements or news about prospective deals far off on the horizon.

No offerings were being actively marketed.

Greece’s OTE prices offering

Things were not much more lively in Europe, but there was one deal that actually did price.

Hellenic Telecommunications Organization, the Greek phone service provider also known as OTE Group, was heard by syndicate sources to have priced a €350 million issue of four-year bonds (Caa2/B+) during the session. That was upsized from the originally announced €300 million.

The bonds, carrying a 4 3/8% coupon, priced at 99.106 to yield 4 5/8%, a market source said.

That was inside the 4¾% anticipated yield that was originally talked around the market when the deal was first launched late Monday, though in line with later talk in the market.

The issue was twice oversubscribed, the company said, and according to market sources, the investor base included a sizable number of domestic Greek investors.

The bond deal came to market via joint bookrunners Citigroup Inc., Deutsche Bank AG and HSBC Holdings plc, along with co-managers Alpha Bank, Eurobank Ergasias, National Bank of Greece and Piraeus Bank.

The issuer of record is the company’s British-domiciled OTE plc financing entity, which will use most of the anticipated proceeds from the bond offering to finance a recently announced tender offer for its existing bonds due in May 2016 and in February 2018, with a portion of the proceeds also earmarked for financing the company’s investment plan, which includes further development of Greece's telecommunications infrastructure.

The chairman and CEO of OTE Group, Michael Tsamaz, said that the issue was “the first new international bond issue by a Greek corporate for over a year.”

OTE also had the last previous Greek corporate issue to hit the capital markets, back in July 2014, when it sold €700 million of 2020 notes.

Tsamaz called the successful new bond offering “a vote of confidence of the international capital markets to both OTE and the country. The demand for the new bond is an acknowledgement of our strategy as well as of the stabilization and prospects of the Greek economy.”

A light session

Back in the domestic secondary market, Wednesday’s session – the last before the U.S. Thanksgiving Day holiday, which will see a full market close scheduled for Thursday and an abbreviated session slated for Friday – was largely anticlimactic, as was widely anticipated.

“We had a few things going on first thing this morning,” one trader said, “but then it just absolutely stopped.

“People are just getting ready to push out early, and some people aren’t in at all to begin with.

“It’s one of those Thanksgiving Eve-type days for sure.”

He characterized the market overall as “flat to a touch weaker, or maybe just flat versus yesterday [Tuesday].”

At another desk, a trader agreed that it was “a quiet day, very little trading, with some things lower.”

However, at another shop, yet another trader called the session “quiet and muted” but saw things “unchanged to a little better.”

Recent deals quiet

Among specific issues, traders said that as has been the case pretty much all this week, there was not much going on in recently priced junk bond issues.

For instance, a trader saw M/I Homes’ 6¾% notes due January 2021 unchanged at 100 3/8 bid, with only about $4 million of the notes having been traded.

The Columbus, Ohio-based single-family homebuilder priced $300 million of the notes at par in a quick-to-market transaction on Monday.

A trader saw a similar lack of activity in some of the other recent new deals, with only a handful of trades.

He said that Equinix’s 5 7/8% notes due 2025 were at 101 bid, 102 offered, which he called unchanged on the bid side but a little higher on the offered side.

The Redwood City, Calif.-based interconnection and data-center company had priced its unscheduled $1.1 billion offering at par last Thursday after the issue was upsized from $1 billion originally.

The trader said that Constellation Brands’ 4¾% notes due 2025 were ¼ point better at 101¼ bid, 102 offered.

The Victor, N.Y.-based producer, importer and distributor of wine, beer and spirits priced $400 million of the notes at par in a drive-by deal, also on Thursday.

LifePoint Health’s 5 7/8% notes due 2023 were about unchanged at 100 3/8 bid, 100 7/8 offered.

The Brentwood, Tenn.-based health-care services provider priced $500 million of the notes at par on Thursday after its quickly shopped transaction was upsized from an originally announced $300 million.

Abengoa knocked lower

A market source said that “the big news of the day” was the slide in the bonds of Abengoa and its various subsidiaries after the Spanish engineering and technology company said it had taken the preliminary steps for entering insolvency proceedings under Spanish law, seeking protection from its creditors.

The company has more than $9 billion of debt on its books.

A trader saw the 7¾% notes due 2020 of its Abengoa Finance SAU subsidiary closing the day around 16¼ bid.

“They really traded down, big time,” he exclaimed, pointing out that the notes had been trading around the 41 bid mark last week and had been at 45-46 at the end of October.

Around $13 million of the notes traded, topping the junk bond Most Actives list in an otherwise sleepy session.

Its 8 7/8% notes due 2017 plunged even further, to 14½ bid from recent levels around a 59-60 context and from levels as high as 70 bid earlier in the month.

More than $10 million traded on Wednesday.

Among the company’s higher-quality bonds, its Abengoa Yield plc 7% notes due 2019 dropped to 86½ bid from levels around 91 earlier this week, but only on around $4 million of round-lot volume.

Gonvarri Corporacion Financiera, a unit of industrial group Corporacion Gestamp, had emerged as a potential savior of the troubled company earlier this month, agreeing on a preliminary basis to invest $377 million into Abengoa in exchange for a 28% stake.

However, Abengoa’s hopes for the capital infusion were dashed on Tuesday night as Gonvarri backed out of the deal, claiming conditions for the investment had not been met.

Abengoa was left with no choice but to announce that it had started talks with creditors on insolvency proceedings.

Observers said this raises the possibility of a potentially long – and messy – restructuring ahead.

Indicators show improvement

Statistical measures of junk market performance turned higher across the board on Wednesday after having been lower all around during the previous two sessions. It was the indicators’ first upside session since Nov. 17 and their second such session in the last seven trading days.

The KDP High Yield Daily index gained 8 basis points on Wednesday to end at 65.70 – its first gain after five straight losses and its second gain in the last seven sessions. On Tuesday, the index had lost 6 bps.

Its yield came in by 3 bpd to finish at 6.92%, its first narrowing after four straight sessions during which it had widened plus one other session when the yield was unchanged from the prior day. It was the second such narrowing in the last seven trading days. On Tuesday, the yield had edged up by 2 bps.

The Markit Series 25 CDX North American High Yield index was up by 9/32 point on Wednesday, ending at 101 31/32 bid, 102 offered – its first gain after one loss and one unchanged result and its second in the last four sessions. On Tuesday, the index had been off by 1/32 point.

The Merrill Lynch North American Master II High Yield index broke out of a five-session slump on Wednesday, improving by 0.107%, in contrast with Tuesday’s 0.186% loss. Wednesday’s rise was its second advance in the last seven sessions.

The index’s year-to-date loss narrowed to 2.296% from 2.401% on Tuesday.

Those year-to-date losses still remain well above the index’s worst 2015 cumulative setback of 3.069%, recorded on Oct. 2.

© 2015 Prospect News.
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