September eyed; Digicel tanks; BMC Software active; First Quantum mixed; Southwestern up on tender

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 4 – As all eyes are on the steady pipeline of deals expected to materialize over the next month, no deals priced on the return from the Labor Day weekend.

With no new paper for more than two weeks, trading volume in the secondary space remained light, sources said.

Digicel Group Ltd.’s junk bonds gave up their gains from Friday and dropped 4 to 6 points on Tuesday as the company’s exchange offer commenced.

BMC Software’s 9¾% senior notes due 2026 (Caa2/CCC+) were among the volume leaders of Tuesday’s session with the notes down slightly.

First Quantum Minerals Ltd.’s junk bonds were mixed in active trading in the secondary space with some issues making nominal gains and others continuing to post losses.

Southwestern Energy Co.’s junk bonds were on the rise on Tuesday after the company launched a $900 million tender offer.

The return

Market participants returned to their desks on Tuesday, following the extended Labor Day holiday weekend in the United States.

Syndicate bankers forecast a pickup in early fall issuance, driven by a pipeline of mergers and acquisitions funding junk deals.

Although the new issue market – in sleep mode through much of August – may not fully reactivate until the Sept. 10 week, some activity is expected to be announced in the present week, a debt capital markets banker said.

Digicel tanks

After a volatile week last week, Digicel’s junk bonds dropped 4 to 6 points on Tuesday as the Jamaica-based mobile phone network provider’s exchange offer commenced.

While lightly traded, Digicel’s 7 1/8% senior notes due 2022 were down about 5 points. The notes closed the day at 54 after closing Friday at 59.

The 8¼% senior notes due 2020 dropped about 6 points in active trading. They were seen trading around 69½ with $14 million of the bonds on the tape.

Digicel’s 6% senior notes due 2021 were the most actively traded in the structure on Tuesday, although they are not included in the exchange offer.

The 6% notes dropped about 4 points to trade at 89½ with more than $22 million of the bonds on the tape by late afternoon.

Digicel announced an exchange offer on Friday for the 7 1/8% and 8¼% notes. The company is offering to exchange the 8¼% notes for up to $2 billion of new 8¼% notes due 2022.

The company is offering to exchange its 7 1/8% notes due 2022 for up to $1 billion of new 8¼% senior cash pay/payment-in-kind notes due 2024.

Cash interest on the new 2024 notes will accrue at a rate of 7 1/8% and PIK interest will accrue at a rate of 1 1/8%.

The exchange would move the 8¼% notes ahead of the 7 1/8% notes in the corporate structure, a market source said.

Holders who exchange by the early tender date of Sept. 14 will receive $1,000 principal amount of the new notes. Holders who tender afterwards will receive $950.

Digicel’s junk bonds were volatile last week in the run up to the exchange offer.

The 7 1/8% notes and 8¼% notes dropped 3½ to 4 points on Aug. 29 after the chief financial officer resigned and the company announced disappointing earnings.

They rebounded on Thursday and Friday, gaining 4 to 5 points only to give up those gains during Tuesday’s session.

The 90% participation threshold required for the exchange may be difficult for the company to achieve, a market source said.

BMC in focus

BMC Software’s 9¾% senior notes due 2026 were among the most actively traded issues of Tuesday’s session with the notes trading down slightly. The notes were down about 3/8 point to trade at par 1/8. They closed Friday at par ½.

About $14 million of the bonds traded during Tuesday’s session.

BMC priced two tranches of eight-year senior notes at par on Aug. 9 in a dual-currency $1.82 billion equivalent deal, which included a $1.475 billion tranche of the 9¾% notes.

The notes initially struggled in the secondary market and were lagging their issue price. However, they gained strength over the past two weeks.

The LBO financing deal brought to market for private equity firm KKR’s buyout of BMC is being looked to as the market awaits Envision Healthcare Corp.’s anticipated $2.15 billion offering, also a LBO deal brought to market to help fund KKR’s buyout of the company.

First Quantum mixed

First Quantum’s junk bonds were mixed in high-volume trading on Tuesday. The Vancouver-based mining company’s 7% senior notes due 2021 were up about 3/8 point to trade around 99½ during Tuesday’s session, according to a market source.

There were about $19 million of the bonds on the tape by the late afternoon. The notes shaved off 2 points last week as the broader structure declined.

However, First Quantum’s 6½% senior notes due 2024 continued to trade down with the notes losing another 2 points.

The notes were largely wrapped around 93 with about $11 million of the bonds on the tape by the late afternoon.

The notes dropped about 1 3/8 point last week.

First Quantum’s junk bonds were active and trading down alongside the price of copper last week.

Mining companies continued to take a hit on Tuesday as the U.S. dollar strengthened, a market source said.

Southwestern tenders

Southwestern Energy’s junk bonds were on the rise on Tuesday after the company launched a tender offer for five series of its notes.

The natural gas and exploration company’s 7¾% senior notes due 2027 were up about ½ point to close Tuesday at 106½.

The company’s 7½% senior notes due 2026 also gained about ½ point. They were seen at 106 bid, 107 offered early in the session.

The notes were trading between 105 3/8 to 106 1/8 throughout Tuesday’s session.

The company’s 6.2% notes due 2025 were up about 1 point to trade around 101¼.

The 5.3% notes were up about 1 point to 102¼. The 4.1% notes traded up about 2 points to par.

Southwestern announced a $900 million tender offer to include its 4.1% notes due 2020, 4.05% notes due 2020, 4.95% notes due 2025, 7½% notes due 2026 and 7¾% notes due 2027. (See related article.)

The tender offer comes on the heels of Southwestern’s announcement it had agreed to sell its Fayetteville Shale assets for $1.87 billion to Flywheel Energy.

The sale assumes $438 million of future contract liabilities after considering certain obligations retained by Southwestern, according to a market source.

Friday inflows

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

High-yield ETFs saw $50 million of inflows on the day.

Actively managed high-yield funds saw $15 million of inflows on Friday, the trader said.

Indexes mixed

Three benchmarks for the high-yield secondary market started the week mixed after all closed last week with losses.

The KDP High Yield Daily index was flat on Monday closing the day at 70.46. While the index was flat, the yield rose 1 basis point to 5.81%. The index closed Friday with a 2 bps loss on the week.

The Merrill Lynch High Yield index was again on the rise on Tuesday after two consecutive trading days of losses.

The index was up 2.7 bps on Tuesday with the year-to-date return now 1.954%.

The index was down 2.6 bps on Friday with the year-to-date return 1.927%. However, the index closed Friday with a 6.9 bps gain on the week.

The CDX High Yield 30 index posted its fifth consecutive trading day of losses on Tuesday. The index was down 9 bps to close Tuesday at 106.77.

The index closed Friday with an 11 bps loss for the week.

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