Primary stays quiet, awaits Solera talk; new Standard Industries firmer; Intelsat dives on revenue

By Paul Deckelman and Paul A. Harris

New York, Feb. 22 – The high yield primary market began the last full trading week in February on Monday the same way that it had ended last week on Friday – quietly, with no issues seen having priced and no announcements of any new deals.

Market participants meantime awaited price talk that is due out on Tuesday on Solera, LLC’s $2.03 billion equivalent offering of eight-year dollar- and euro-denominated notes. The provider of software to the auto insurance claims processing industry was scheduled to wrap up its roadshow marketing that deal to potential investors on Monday, with pricing expected sometime thereafter.

Among recently priced new issues, both tranches of the split-rated two part offering from roofing and insulation products manufacturer Standard Industries, Inc. were heard to have firmed on Monday, adding to the gains that they racked up in initial aftermarket dealings last week, though on considerably less volume than was seen on Friday.

Healthcare-oriented REIT Medical Properties Trust, Inc.’s eight-year notes also added to last week’s gains, in moderately busy dealings.

Away from the new or recent deals, Intelsat SA’s bonds were sharply lower in heavy trading – down 9 or 10 points across its capital structure- after the communications satellite company reported lower than expected fourth-quarter and full-year preliminary revenues and issued less robust than expected guidance.

The company also hired Guggenheim Securities to assess unspecified “financing and balance-sheet initiatives.”

Statistical market performance measures turned higher across the board on Monday after having been lower all around on Friday and mixed on Thursday. It was the fourth highest session in the last six trading days.

The primary market failed to generate any news on Monday.

Despite the recent reduction in volatility in the global capital markets and price improvements in high yield bonds, the remainder of the last full week of February is expected to be a slow one because issuers in Europe and the United States are in an earnings blackout set to expire at the end of the month, sources said.

The first week of March should see a pickup in the new issue market, they added.

There could be one or two dollar-denominated deals this week, a trader said, adding that BofA Merrill Lynch is expected to lead at least one of them.

Meanwhile Solera, LLC has been marketing $2.03 billion equivalent of eight-year senior notes (Caa1/B-) in tranches of euro-denominated and dollar-denominated notes.

Price talk is expected on Tuesday, according to a U.S.-based trader.

The proposed dollar-denominated notes appear to be shaping up in a 9½% to 10% yield range, market sources say.

Preliminary guidance has yet to surface on the euro tranche, which came as no surprise to a sell-side source in London.

“The European roadshow took place at the height of the volatility,” said the sellsider.

European deals a mixed story

The deals that have priced so far in 2016 are a mixed story, the London-based sellsider said.

Add-on deals, including taps of existing issues from Alliance Automotive Finance plc, Labeyrie Fine Foods SAS and WFS Global Holding SAS are holding in at or above new issue price, the source said.

However freshly minted bonds tend to be a different story, the sellsider said, adding that the new Moby SpA (Onorato Armatori SpA) 7¾% senior secured notes due Feb. 15, 2023 (Ba2/BB-) are down three points, while WFS Global's new 12½% senior notes due Dec. 30, 2022 (Caa1/CCC+) are down 1¼ to 1½ points (WFS priced both a €100 million add-on to its 9½% senior secured notes due July 15, 2022 and a €140 million issue of the new 12½% notes due 2022 in the same transaction on Feb. 5).

Mixed flows

European high yield accounts have seen outflows recently, the London-based sellsider said, adding that there was a report that European dedicated high yield funds saw more than €400 million of outflows during the most recent week for which data was available.

However fund managers are thought to be sitting on cash in the mid-single digits, as a percentage of assets under management, the sellsider said.

“There's no panic.

“No one's expecting major outflows,” the source remarked.

Also cash has been building due to the lack of a new issue calendar, the sellsider said.

In the United States, meanwhile, the most recent fund flow news was mixed, a trader said.

Last Friday, the most recent session for which data was available at press time, high yield ETFs saw $98 million of outflows on the day.

However actively managed funds saw $65 million of inflows on Friday.

Dedicated bank loan funds were decidedly negative on Friday, sustaining $275 million of outflows, the trader said.

Intelsat loses altitude

In the secondary market, traders said the most notable name of the day was easily Intelsat, whose bonds slid badly after the Luxembourg-based communications satellite operator reported lower than expected preliminary fourth-quarter and full-year numbers.

“Intelsat’s whole structure was down 8 or 9 points or so,” one of the traders noted.

Its Intelsat Jackson Holdings SA’s 5½% notes due 2023 was the busiest name of the bunch, with over $39 million having changed hands by the close, losing 9¾ points to finish at 65 5/8 bid.

Intelsat Jackson’s 7¼% notes due 2019werer seen down 9½ points on the day, at 78½ bid, while its 7½% notes due 2021 did even worse than that, sliding by 10¼ points to 72¾ bid, both on about $35 million of volume.

The unit’s 7¼% notes due 2020 also lost more than 9 points, going home at 73½ bid, with over $23 million traded.

Intelsat Luxembourg SA’s 8 1/8% notes due 2023 dropped by 8 points on the day, to 28 bid, on volume of $15 million.

Intelsat’s New York Stock Exchange shares fell by 29 cents, or 9.63%, to end at $2.72 on volume of 1.2 million, more than three times the norm.

The bonds and shares swooned after the company put out its preliminary numbers for the fourth quarter and full fiscal year ended Dec. 31.

Quarterly revenues of $571.26 million were down 7.7% year-over-year from $619 million in the comparable 2014 fourth period, versus average analyst estimates of just under $576 million. Full-year revenues were $2.352 billion, about in line with the estimates but down from $2.47 billion last year.

It also issued full-year 2016 revenue guidance of $2.14 billion to $12.22 billion, down from expectations of around $2.29 billion. Adjusted EBITDA is expected to come in around $1.625 billion to $1.675 billion.

The company said that all of the numbers it released are preliminary and are presented prior to giving effect to any impairment charges it ultimately may incur. It expects to incur a non-cash impairment charge resulting in a substantial reduction of its $6.8 billion goodwill and other intangible assets, primarily reflecting a reduction to the goodwill value established as a result of the acquisition of Intelsat in 2008.

It projects that the process will be completed in the next two weeks, after which Intelsat would expect to file its annual report.

Intelsat also announced that it had retained Guggenheim Securities to assess what it called “financing and balance-sheet initiatives” – but company executives declined to say what these were, although they indicated that the hire was not a prelude to a merger or acquisition transaction or to a Chapter 11 bankruptcy restructuring.

Standard Industries better

The carnage in Intelsat overshadowed everything else in the market, including trading in recently priced issues.

A trader said that last Thursday’s issue of five-year and seven-year paper from Standard Industries showed only “pretty light volume.”

He saw both of those tranches of notes in a 101 to 101½ bid context.

A market source at another desk said that both of those note tranches were up about 3/8 point on the session, with its 5 1/8% notes due 2021 at 101½ bid and its 5½% notes due 2023 at 100 7/8 bid – but only on volume of around $4 million and $7 million, respectively.

That was a marked contrast to the activity seen on Friday, when almost $50 million of each tranche traded, the five-years going home at 101 1/8 bid, the seven-years at 100½ bid.

The Parsippany, N.J.-based roofing and insulation products maker – formerly known in the market as Building Materials Corp. of America before its official name change last month – priced $1 billion of the split-rated (Ba2/BBB-) notes at par late in the day on Thursday, evenly split into two tranches of $500 million each, after the issue was upsized and an originally shopped $650 million and the seven-yield piece was added to the original five-year issue. The bonds were freed to trade on Friday.

Medical Properties moves up

Medical Properties Trust’s 6 3/8% notes due 2024 gained ¼ point on the day to end at 101 7/8 bid, on volume of more than $19 million.

That was a pickup from Friday, when only around $5 million had traded on the day, with the bonds up ¼ point at 101 5/8 bid.

The Birmingham, Ala.-based healthcare-oriented real estate investment trust’s quickly shopped new deal had priced at par on Wednesday after having been upsized to $500 million from an originally announced $400 million.

Over $48 million of the new notes traded after they were freed for secondary market dealings, getting as good as 101 5/8 bid by Wednesday’s close and setting the stage for Thursday’s continuing gains to the 101½ to 102 bid context, with over $16 million traded.

Traders said the split-rated (Ba1/BBB-) new issue attracted attention from traditional junk bond investors as well as high yield accounts able to play in split-rated deals to pick up yield, helped by what one junk market player called “a respectable coupon.”

Valeant bonds battered

Away from the recent issuers, Valeant Pharmaceuticals International Inc.’s 6 1/8% notes due 2025 dropped by more than 5 points to end at 83 bid, with over $39 million traded.

The bonds foundered after The Wall Street Journal reported that the Laval, Que.-based drug-maker would likely restate some of its financial results, following an internal review that the company conducted of its business with former specialty pharmacy partner Philidor Rx Services.

Valeant’s NYSE-traded shares plummeted by $9.07, or 10.67%, to end at 75.92. Volume of nearly 32 million shares was almost four times the usual daily handle.

Indicators show improvement

Statistical market performance measures turned higher across the board on Monday after having been lower all around on Friday and mixed on Thursday. It was the fourth highest session in the last six trading days.

The KDP High Yield Daily Index rose by 18 basis points on Monday to end at 62.61, its first gain after Friday’s 6 bps loss and its fifth gain in the last six sessions

The Markit Series 25 CDX North American High Yield Index gained 13/32 point on Monday, its first gain after two straight lower sessions – including Friday’s 3/16-point loss – and its fifth gain in the last seven sessions.

The Merrill Lynch North American High Yield Master II Index also bounced back on Monday after having moved lower on Friday for the first time after five straight gains. Its 0.506% advance more than offset Friday’s 0.25% retreat.

Monday’s upturn cut the index’s year-to-date deficit to 2.671% from 3.161% on Friday, and it also remained down from the 5.142% loss seen on Feb. 11, which had been its first cumulative loss greater than 5% this year and a new mark for the worst cumulative deficit for the year.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.