Allied Universal in focus; Sirius Computer trades up; Digicel under pressure

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 28 – After the biggest week of the year for new deal activity, the domestic high-yield primary market was quiet on Friday.

The European primary market saw the sole deal price with Travelodge Hotel Co. pricing a £440 million issue of six-year senior secured floating-rate notes (B3/B-).

The forward calendar was light heading into the weekend. However, Alpha Auto Group’s $225 million offering of five-year notes is still believed to be in the market.

Meanwhile, the secondary space was largely flat heading into the weekend with all eyes on the pending meeting between President Donald Trump and President Xi Jinping at the G-20 summit for clues about the future direction of the market.

Allied Universal Holdco LLC’s recently priced two tranches were in focus in the secondary space with both trading at a premium to their issue price.

While Sirius Computer Solutions, Inc.’s 11% senior notes due 2027 (Caa1/CCC+) were trading up in the secondary space, volume was light.

Turning away from new paper, Digicel Group Ltd.’s junk bonds were under pressure on Friday following a weak quarterly report.

Travelodge prices FRN

A quiet Friday session saw Travelodge Hotel price a £440 million issue of six-year senior secured floating-rate notes with a 537.5 basis points spread to Libor at 99.50.

Joint global coordinator Goldman Sachs International will bill and deliver. Barclays was also a joint global coordinator.

The Parsippany-Troy Hills, NJ lodging and hospitality company plans to use the proceeds to refinance debt.

Domestic market

In the dollar-denominated market, the biggest week of the year came to a quiet conclusion on Friday.

Nevertheless, the June 24 week, which put up $11.5 billion of new dollar-denominated, junk-rated issuance, stands as the biggest week of 2019 to date, eclipsing the week of May 6, which saw $10.7 billion.

It was a front-loaded week, with the Monday session alone featuring seven issuers pricing $4.01 billion, all of which came quick to market.

The week ahead

There was possibly one deal on the active calendar at Friday's close, market sources said.

Although it has been radio silent for a week from Canada's Alpha Auto Group, a bond deal is still believed to be in the market, a trader said.

The company conducted a roadshow for a $225 million offering of five-year notes during the June 17 week.

Initial price talk was in the 8% to 8¼% area, the trader recounted, adding that in the interim interest in the deal at 11% is heard to have surfaced.

Apart from that deal, the holiday-abbreviated July 1 week is expected to be a quiet one on the new issue front, sources said on Friday.

The following week could see the market reactivate, an investment banker said.

However, heading into mid-to-late July the market should enter a blackout period as potential issuers report earnings for the quarter now coming to an end.

Allied Universal in focus

Allied Universal’s two-tranches were in focus on Friday with both trading well above their issue prices.

Allied’s 6 5/8% senior secured notes due 2026 (B3/B-/BB-) traded up to 101 5/8 bid, 101 7/8 offered early in Friday’s session.

The notes came in as the session progressed and were changing hands around 101½, according to a market source.

With more than $65 million in reported volume by the late afternoon, the notes were among the most active in the secondary space.

Allied’s 9¾% senior unsecured notes due 2027 (Caa2/CCC/CCC+) were also active with more than $30 million in reported volume by the late afternoon.

The notes were seen at 99¾ bid, par offered early Friday and were changing hands at par by the late afternoon, sources said.

While both tranches were performing well in the secondary space, the deal was resized and underwent covenant changes prior to pricing.

The deal followed a similar trajectory as others with dual secured/unsecured tranches – the secured tranche was in demand while the unsecured tranche struggled.

Allied Universal priced a twice upsized $1 billion tranche of the 6 5/8% notes at par on Thursday.

The tranche size was initially $500 million but was upsized to $800 million only to again be upsized to $1 billion.

Pricing came at the tight end of final yield talk in the 6¾% area, which tightened from initial guidance of 6¾% to 7%.

Allied also priced a $1.05 billion tranche of the 9¾% notes at 98.641 to yield 10%.

The tranche came in line with talk for a coupon in the high 9% area and a discount to yield 10%.

However, the tranche came wide of initial talk of 250 to 300 basis points behind the secured tranche. It also underwent covenant changes prior to pricing.

Sirius gains

Sirius Computer’s 11% senior notes due 2027 were also trading at a premium in the secondary space. However, there were only a few prints on the tape by the late afternoon.

The 11% notes were seen at par bid, par ¾ offered early in the session and were changing hands around par ½ in the late afternoon.

The 11% notes saw only $6 million in reported volume by the late afternoon.

Sirius Computer priced a $300 million issue of the 11% notes at par on Thursday.

The yield printed wider than yield talk of 10½% to 10¾% and well beyond initial price talk in the 10% area.

There was reported to be a standoff between an anchor order and the issuer over covenant revisions.

The leveraged buyout deal did undergo covenant changes bearing primarily upon how the company may incur additional debt and disburse cash prior to pricing.

Digicel under pressure

Digicel’s capital structure was under pressure on Friday after the Kingston, Jamaica-based mobile phone network provider reported disappointing numbers.

Digicel’s recently priced 8¾% senior notes due 2024 were down 2½ points in high volume activity.

They stood poised to close the day at 94½ with more than $17 million in reported volume, according to a market source.

Digicel priced a $600 million issue of the 8¾% notes at par in March. While the notes initially performed well in the secondary space, they have steadily traded down since May.

While less active, Digicel’s 6% senior notes due 2021 were off more than 5 points to trade down to 74¾, according to a market source.

The 6% notes saw more than $8 million in reported volume.

Digicel recently reported disappointed earnings with revenue decreasing and leverage at 7x earnings, The Irish Times reported.

Mixed Thursday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw a hefty $487 million of inflows on the day.

However, actively managed high yield funds were flat, posting $15 million of outflows on the session.

News of Thursday's daily flows follows a late Thursday afternoon report that the combined funds saw $3.089 billion of net inflows in the week to Wednesday's close, according to Lipper US Fund Flows.

Indexes gain

Indexes closed out the week with gains although they posted minor losses on the week.

The KDP High Yield Daily index gained 1 bp to close Friday at 70.79 with the yield now 5.46%.

The index shaved off 1 bp on Thursday, dropped 2 bps on Wednesday, was down 3 bps on Tuesday and shaved off 1 bp on Monday.

The index posted a cumulative loss of 6 bps on the week.

The ICE BofAML US High Yield index popped back above 10% on Friday after sinking below it on Wednesday.

The index gained 13.9 bps with the year-to-date return now 10.118%.

The index was up 1.2 bps on Thursday, was down 4.2 bps on Wednesday, dropped 18.3 bps on Tuesday and gained 5.5 bps on Monday.

The index was down 1.9 bps on the week.

The index initially shot past 10% returns on June 20.

The CDX High Yield 30 index gained 14 bps to close Friday at 107.59.

The index was up 27 bps on Thursday and 18 bps on Wednesday after dropping 49 bps on Tuesday and 15 bps on Monday.

The index was down 5 bps on the week.

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