Primary market quiet; credit spreads blow out; Bombardier, Pyxus ‘destroyed’; DJO Global, Zayo jump

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 19 – The domestic primary market was dormant on Monday with not much activity expected for the remainder of the truncated Thanksgiving holiday week.

However, one deal still remains on the forward calendar, which may be the sole deal of the week.

Atlantica Yield remains in the market with its $300 million senior notes offering, although the maturity of the notes may be shortened and price talk widened, sources said.

There is a post-holiday pipeline of deals in the domestic market. However, their execution will depend on market conditions and issuer expectations, a source said.

Meanwhile, the secondary space continued to struggle with the market in general down 1 point.

The blowout in credit spreads continued with last week marking the largest widening of credit spreads in four years.

Bombardier Inc.’s and Pyxus International Inc.’s junk bonds saw the steepest decline with notes from the issuers falling 10 to 12 points in a single week.

While the market is currently sloppy, it could change in the opposite direction quickly, a source said.

There were some bright spots in the market on Monday with some issues improving on takeover news. DJO Global Inc.’s junk bonds jumped on Monday on news it would be bought out by Colfax Corp.

Zayo Group Holdings Inc. also saw its junk bonds improve on news it is being eyed for a potential takeover.

Atlantica deal still in play

A $300 million senior notes offering (BB/BB+) from Atlantica Yield, expected to price last week, remains in the market, sources say.

No official price talk has surfaced. However, early guidance was in the low-to-mid 6% area.

The eight-year non-call-three deal may be morphing into a six-year non-call-four structure, a trader said on Monday, adding that the latest whisper on the deal is 7%.

It is possible that, should it price, it will be the Nov. 19 week's sole deal, sources say.

The week has just one more full session and one foreshortened session ahead of the extended Thanksgiving holiday weekend in the United States, which gets underway following an early close on Wednesday.

Given market conditions, and a propensity to stage for the coming holiday, on the part of those able to do so, the U.S. new issue market is unlikely to generate much news prior to the final week of November, sources say.

Likewise, the European primary market is unlikely to be active during the Nov. 19 week, a London-based debt capital markets banker said.

Market conditions, expectations

There is a post-Thanksgiving pipeline, a syndicate banker said on Monday.

However, it hinges on two factors.

The first is market conditions, the banker said, adding that last week high yield widened substantially, eroding investor sentiment that had been altogether modest to begin with.

The second factor is issuer expectations, the banker said.

Executions since the middle of October seem to bear out this assertion.

Of the 10 deals in which early price talk widely circulated the market, four came at the wide end or wide of early guidance.

Since mid-October, some issuers have endured prolonged stays in the market during which pricing widened, in some cases maturities were foreshortened, and bond covenants became more restrictive.

Throughout a phenomenal junk bond rally that stretches back almost a decade, with a few notable, fleeting disruptions, issuers tended to have their way in the primary market, sources recall.

In the late days of 2018, that is no longer the case, they add.

Credit spreads

Credit spreads in the high-yield market continued to blow out with last week marking the largest widening in four years, a market source said.

On average, spreads were wider by 51 bps, the source said. Double B credits were wider by 41 bps, single B credits by 51 bps and triple C credits by 73 bps.

However, while sloppy, the market is liquid and the situation could reverse quickly.

“People aren’t laying a lot of shorts,” a market source said.

Some positive commentary on trade talks could easily lift the market from its current slump, the source said.

However, few people are adding to their positions at the moment with many waiting to see.

Destroyed

Two issuers saw major losses as credit spreads blew out last week.

Bombardier’s junk bonds “were destroyed,” a market source said.

While the notes saw a slight rebound on Monday, the whole capital structure fell 8 to 10 points in one week, a market source said.

Bombardier’s 8.75% senior notes due 2021 were quoted at par ½ bid, 101½ offered on Monday.

They were at 108 bid, 109 offered one week ago, a source said.

The 7½% senior notes due 2024 gained back about ½ point on Monday to close the day at 91½. The notes were trading between par ½ and 101 prior to last week.

The 7½% senior notes due 2025 gained 1½ point on Monday to close the day at 91¾.

However, the notes were trading between par and 101 prior to last week.

Bombardier’s junk bonds have been under pressure since the company reported earnings. They dropped in active trading last Friday after news broke that regulatory authorities were investigating the company’s program to facilitate share sales from executives.

The slight rebound on Monday came after a Citigroup analyst said the investigation was routine.

Pyxus International, formerly Alliance One International, also saw a double-digit drop in its junk bonds last week.

The tobacco company’s 9 7/8% senior notes due 2021 dropped 12 points in a single week, a source said.

The 9 7/8% notes were seen at 83½ bid, 84½ offered on Monday. They were in the 96 range prior to last week.

DJO Global jumps

While the market in general was down on Monday, DJO Global’s junk bonds jumped on news it will be acquired.

DJO’s 8 1/8% senior notes due 2021 were major movers in the secondary space on Monday with the notes gaining 3 points.

The notes were quoted at 103 5/8 bid, 103 7/8 offered with most trades between 103 5/8 and 103¾, sources said.

The bonds become callable on Dec. 20 at 104.063 with the premium dropping to 102.031 in June 2019, a source said.

News broke Monday that Colfax Corp. will acquire the medical device company from Blackstone Group for $3.15 billion.

Colfax plans to make a big pass at the debt capital markets to help fund the buyout.

The Annapolis Junction, Md.-based diversified technology company intends to bring between $2.4 billion and $2.7 billion of bonds and loans.

The debt financing is backed by a bridge loan. JPMorgan and Credit Suisse are the committed banks.

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

Zayo improves

Zayo Group’s junk bonds also jumped on Monday on news a group of investors is eyeing a potential takeover of the company.

Zayo’s 5¾% senior notes due 2027 were up 1¼ point in active trading on the news.

While the notes traded as high as 97¼ early in the session, they came in as the day progressed, closing at 96, a market source said.

Funds managed by Blackstone Group LP and Stonepeak Partners LP are eyeing a takeover that would take the communications infrastructure company private, Bloomberg reported.

KKR, I Squared Capital, GTCR and Charlesbank Capital Partners are also a part of the group of investors eyeing Zayo.

Indexes down again

Indexes were again in the red on Monday after all saw a steep drop last week.

The KDP High Yield Daily index dropped 12 basis points on Monday, closing the day at 68.32 with the yield now 6.61%.

The index dropped 78 bps on the week last week.

The ICE BofAML US High Yield index dropped another 12.3 bps with the year-to-date return now negative 0.319.

The index dropped 130.6 bps on the week last week, with returns entering into negative territory for the first time since June last Thursday.

The CDX High Yield 30 index dropped 47 bps, closing Monday at 103.7. The index sank 137 bps on the week last week.

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