Warner Music sets price talk; Intelsat sees losses; Peabody active; Rent-A-Center stabilizes

By Colin Hanner and Paul A. Harris

Chicago, Oct. 12 – No new dollar-denominated paper priced during a quiet session for the high-yield bond market on Wednesday.

Warner Music Group Corp. set price talk in its $630 million equivalent offering of eight-year senior secured notes (expected ratings Ba3/B), which is expected to price Thursday.

The junk market was weaker Wednesday, though trading activity was still generally muted, given Yom Kippur.

“It seemed like the market was on a little bit of a breather today,” a trader said.

The market was eyeing the release of the minutes from the Federal Reserve’s September policy meeting. The minutes indicated that the vote to keep rates steady for the time being was a “close call.” Members of the central bank appeared to have valid arguments both for increasing rates and for keeping them unchanged at 0.25% to 0.5%.

The minutes further indicated that a rate increase come December is highly likely.

One trader pointed to Intelsat SA – particularly the Jackson and Luxembourg holdings – as active. The Caa2-rated Jackson 7¼% notes due 2019 were down “around 1½ to 2” points to 81 from 83, and the Ca-rated Luxembourg notes were down “2 points” to 31½, the trader said.

This comes off the news that Intelsat’s Silver Lake directors Egon Durban and Simon Patterson will resign from its board of directors at the end of the year.

After tumbling on Tuesday, Rent-A-Center Inc. seemed to stabilize and was “not nearly as active,” as one trader put it. After the 6 5/8% notes due 2020 took a hit of 10 points on Tuesday, “price points were right around the same zip code” and traded with an “86 handle” on Wednesday, and the 4¾% notes due 2020 were “pretty quiet.”

Tuesday’s weakness came after the Plano, Texas-based furniture and electronics rental company reported dismal preliminary third-quarter results.

The results showed a 12% decline in same-store sales year over year. The company added that U.S. gross profit as a percentage of total revenue would be flat.

The company attributed the weak figures to a new point-of-sale system, citing “system performance issues and outages” that resulted in a larger-than-expected negative impact on core sales.

“While we expect it to take several quarters to fully recover from the impact to the core portfolio, system performance has improved dramatically, and we have started to see early indicators of collections improvement,” Robert Davis, chief executive officer, said in a statement.

Tereos upsizes

In Wednesday's primary market, France-based sugar producer Tereos priced a €200 million add-on to its 4 1/8% senior notes due June 6, 2023 at 102.75.

The deal, which was announced at a size of €100 million minimum, priced through the rich end of the 102.25 to 102.5 price talk.

It was led by a syndicate of banks that included BNP Paribas, Natixis, Rabobank, CM-CIC and HSBC.

Sprint securitization deal

Sprint began marketing $3.5 billion of senior secured notes (expected ratings Baa2//BBB) as part of a securitization deal that is coming in a joint effort on the part of the high-yield, investment-grade and structured products syndicate desks.

The deal is coming in three tranches.

The short maturity tranche will be class A-1 five-year notes with four years of call protection, a three-year weighted average life, interest-only payments for one year, amortizing at 25% annually thereafter, and a final maturity of March 2021.

The medium maturity tranche will be class A-2 seven-year notes with six years of call protection, a five-year weighted average life, interest-only payments for three years, amortizing at 25% annually thereafter, and a final maturity of March 2023.

The long maturity tranche will be class A-3 10-year notes with nine years of call protection, a 7.5-year weighted average life, interest-only payments for five years, amortizing at 20% annually thereafter, and a final maturity of March 2026.

Tranche sizes to be determined.

Goldman Sachs is the global coordinator and left lead bookrunner. Mizuho and JPMorgan are the joint lead bookrunners.

The Overland Park, Kansas-based wireless telecommunications services and internet carrier holding company plans to use the proceeds for general corporate purposes, which may include the retirement of debt service requirements and network densification and optimization.

Warner talks dollar/euro deal

Warner Music set price talk in its $630 million equivalent offering of eight-year senior secured notes (expected ratings Ba3/B).

A €340 million tranche is talked to yield in the 4¼% area. Books close at 7 a.m. ET Thursday, and the tranche is set to price thereafter.

A $250 million tranche is talked to yield in the 4 7/8% area. Books close at 1 p.m. ET Thursday, and the tranche is set to price thereafter.

Credit Suisse Securities (USA) LLC is the lead left bookrunner. Barclays, UBS Investment Bank, Macquarie Capital and Nomura are joint bookrunners.

Energy stabilizes

Peabody Energy Corp., which saw one of the highest gains of the day on Tuesday, continued to be “active again” but not as active as it has been in the past few days, a market source said.

That success can be attributed to receiving approval of required debtor-in-possession lenders to amend milestones as well as receiving the highest contract for metallurgical coal in recent history after Chinese efforts to trim its coal output.

The company’s 10% notes due 2022 traded down a “half-point to a 56 handle,” the source said. Its 6½% notes due 2020 were down three-quarters of a point to 36½.

This was amidst news surrounding the Organization of Petroleum Exporting Countries and their willingness to cut supply, which was exacerbated on Wednesday as the organization reported eight-year highs in September output and a forecasted surplus in 2017 for non-OPEC suppliers.

Oil fell for the second straight day by more than 1%.

After a downgrade announcement from Moody’s Investors Service for Pacific Drilling SA, including its 5 3/8% senior secured notes to Caa3 from Caa2, and its 7% senior secured notes to Ca from Caa3, a trader said there was limited activity and the sole trade at 42½ was “in line with what the last trade was.”

"PacDrilling's ratings downgrade reflects our extremely negative view of the offshore drilling sector with no near-term signs of improvement,” Moody’s senior analyst Sreedhar Kona said in a press release.

Market turns south

After finishing mixed in the previous session, market indicators were trending weaker on Wednesday.

The Markit Series 27 CDX index was just barely softer, however, trading at 104.03 bid, 104.13 offered.

The KDP High Yield index meantime fell to 71.31 from 71.35, as yields widened to 5.51% from 5.49%.

Stephanie N. Rotondo contributed to this review

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