Europe sees one deal withdraw; Mercer weakens; energy slump continues, Altice gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 30 – The domestic primary market remained dormant on Friday with the forward calendar vacant.

The window of opportunity for new deal activity has narrowed to the next two weeks.

However, sources were optimistic new deals will surface before 2018 draws to a close.

Volatile market conditions also continued to have an impact on the European primary with one deal withdrawing from the market.

Cognita pulled its proposed offering of eight-year senior notes, sources said.

However, Nidda BondCo GmbH, the parent of Nidda Healthcare Holding GmbH, was able to execute its €250 million offering of seven-year senior notes.

Meanwhile, the secondary space was again soft on Friday after firming earlier in the week.

Mercer International Inc.’s new 7 3/8% senior notes due 2025 (Ba3/BB-) was slow to trade on Friday.

While the notes were still trading at a premium to their issue price, they were down slightly from Thursday’s close.

Crude oil futures continued their descent on Friday, again dropping below the $50 threshold in intraday trading.

As expected, 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 alongside crude oil futures.

Whiting Petroleum Corp.’s 6 5/8% senior notes due 2026 were also active although the notes were trading largely flat.

Altice SA and Altice France SA’s junk bonds were again major volume movers in the secondary space, as they have been for much of the week.

News surfaced Friday that Altice France had entered into an agreement for the sale of a minority stake in its fiber optic cable business to a consortium of investors.

Significant discount on Nidda

Nidda BondCo GmbH, the parent of Nidda Healthcare Holding, priced €250 million of 7¼% seven-year senior notes (Caa2/B-/CCC+) at 97.404 to yield 7¾% on Thursday.

However, it was Friday before terms widely circulated, according to market sources.

The yield printed in the middle of yield talk that was set in the 7¾% area.

Joint global coordinator Deutsche Bank will bill and deliver. JPMorgan was also a joint global coordinator.

Of the total deal, €175 million is expected to settle on Dec. 4, the source said.

Meanwhile a further €75 million, which is to be purchased by certain investors who have been notified by Deutsche Bank, is expected to settle on Dec. 13.

The Frankfurt-based pharmaceutical company plans to use the proceeds to acquire an additional 23.8% stake in operating company Stada Arzneimittel (Stada) from its shareholders, increasing Nidda’s stake in Stada to 93.61%.

Cognita withdraws

Elsewhere, Cognita withdrew its proposed offering of eight-year senior notes from the market, sources say.

On Friday, S&P Global Ratings said it has withdrawn its CCC rating on the £225 million equivalent of Lernen Bondco plc senior notes following Cognita’s announcement that it intends to cancel the issuance and instead increase the euro tranche of its term loan B.

The bond deal was shopped by means of an investor roadshow.

Although no official price talk surfaced, initial guidance was in the low-to-mid 8% area, sources said.

Cognita, a Milton Keynes, England-based operator of worldwide private schools, came to the market to repay the bridge loan used to fund the acquisition of Cognita by Jacobs Holding from Bregal Investments and KKR.

The week ahead

Following Friday’s close there remained an issuance window that should stay open until at least Friday, Dec. 14, market sources say.

During that time there should be activity, an investor said on Friday.

The Bank of America Merrill Lynch Leveraged Finance Conference is scheduled to take place in Boca Raton, Fla. during the Dec. 3 week.

In years past, that conference has generated deals, the investor noted, but added that there was no visibility on any such transaction heading into the weekend.

“Right now, the market is focused on trade,” the investor said, alluding to the G20 Summit in Buenos Aires, where president Donald Trump was expected to have dinner on Friday with Chinese president Xi Jinping to discuss contentious trade issues between China and the United States.

If progress on trade negotiations emerges from that engagement, and if crude oil prices begin to demonstrate some traction, new issue activity could resume in the run-up to 2019, the investor said.

There are still deals for 2018, sellside sources say, although no volunteered specific issuer names on Friday.

Mercer weakens

The lone deal to price since Nov. 15 was seen slightly weaker in light volume on Friday, although the notes were still holding above par.

Mercer International’s 7 3/8% senior notes due Jan. 15, 2025 were trading in the par to par ½ context on Friday, a market source said.

The notes were in the par ½ to par ¾ context after breaking for trade on Thursday.

While active on Thursday with more than $22 million on the tape, the new bonds were quiet on Friday with only $3 million on the tape, sources said.

Mercer International priced a $350 million issue of the 7 3/8% senior notes at par on Thursday.

The yield printed at the wide end of yield talk announced in the 7¼% area.

Energy slump continues

Crude oil futures continued to slide on Friday, dragging the energy sector down with them.

California Resources’ 8% senior notes due 2022 were again the most actively traded issue in the secondary space.

The notes were down 1 point from Thursday’s close.

They were quoted at 76 bid, 77 offered and were set to close the day at 76¾, sources said.

More than $30 million of the bonds were on the tape by the late afternoon.

While the notes have zigzagged between minor gains and larger losses throughout the week, they closed the week down about 3 points.

Whiting Petroleum’s 6 5/8% senior notes due 2026 were also active with more than $20.5 million of the bonds on the tape on Friday.

However, the notes were largely trading flat, a market source said.

They were changing hands in the 95¾ and 96¼ context for the majority of the session.

The barrel price of WTI crude oil for January delivery again slid on Friday, dipping below the $50 threshold in intraday trading for the second time this week.

Crude oil futures settled at $50.93 on Friday, a decrease of 52 cents or 1.01%.

While there was selling in some oil and gas names, there has also been buyers, a market source said.

There has been chatter about Russia joining OPEC in reducing oil production, which would push crude oil futures higher.

“But no one really knows what’s going to happen,” the source said.

Altice gains

Altice’s senior notes remained major volume movers in the secondary space, as they have been for much of the week.

The notes continued to post gains as news surfaced that Altice France had entered an agreement to sell a minority stake in in its fiber optic cable business.

Alitce’s 7¾% notes were second only to California Resources in volume with more than $30 million on the tape by the late afternoon.

The notes rose 1½ point to close the day at 95½, a market source said.

Altice France’s 7 3/8% senior notes due 2026 were up about 5/8 point to close the day at 96¼. The issue also saw about $30 million trade during Friday’s session.

Altice France’s 8 1/8% senior notes due 2027 were up about ¼ point to close the day at 98. About $22 million of the notes were on the tape.

News surfaced Friday that Altice France had entered into an exclusivity agreement with Allianz Capital Partners, AXA Investment Managers - Real Assets and Omers Infrastructure to sell a 49.99% stake in SFR FttH for €1.8 billion.

SFR FttH is a company that will be formed by Altice France to house the company’s fiber optic cable business in France, according to a company news release.

The deal is expected to close in the first quarter of 2019.

Mixed Thursday flows

The daily cash flows of dedicated high-yield bond funds were mixed on Thursday, a trader said.

High-yield ETFs saw $95 million of inflows on the day.

However, actively managed high-yield funds sustained $10 million of outflows on Thursday, the source said.

News of Thursday’s daily flows follows a Thursday afternoon report that the combined high yield funds sustained $1.2 billion of outflows in the week to Wednesday’s close, according to Lipper US Fund Flows.

Of that amount, $720 million flowed out of the ETFs, the trader said.

Meanwhile, in a reversal of fortunes, it is the dedicated bank loan funds that are presently seeing the more pronounced negative cash flows, the trader said.

The bank loan funds saw $1.3 billion of outflows in the week to Wednesday’s close, $100 million more than the junk funds.

The loan funds sustained an additional $240 million of daily outflows on Thursday, the source said.

Indexes mixed

Indexes closed the week mixed on Friday although all saw gains on the week after posting losses the previous week.

The KDP High Yield Daily index was up 5 basis points to close Friday at 68.37 with the yield 6.57%.

The index was up 15 bps on Thursday and 7 bps on Wednesday after dropping 4 bps on Tuesday and 2 bps on Monday.

The index was up 21 bps on the week after a 32 bps drop on the week last week.

The CDX High Yield 30 index saw another decline on Friday after a slight dip on Thursday followed a meteoric rise on Wednesday.

The index dropped 25 bps to close Friday at 104.47. The index was down 7 bps on Thursday after jumping 101 bps on Wednesday.

The index also gained 15 bps on Tuesday and 20.12 bps for a 104.12 gain on the week. The index was down 74 bps on the week last week.

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