No post-holiday pricings to open September, but Ultra Pete seen on tap; busy Bombardier lower

By Paul Deckelman and Paul A. Harris

New York, Sept. 2 – September began on Tuesday in Junkbondland pretty much the way August had ended – quietly, with no new deals seen having priced for an 11th consecutive session.

However, syndicate sources said that what is expected to be the first post-Labor Day pricing is waiting in the wings, with Houston-based oil and natural gas exploration and production company Ultra Petroleum Corp. expected to price its previously announced $700 million offering of 10-year notes on Wednesday, following a morning investor call.

Meanwhile, another Houston-based energy operator, Endeavour International Corp., announced late in the day that is electing not to make Tuesday’s scheduled interest payment on two issues of 2018 junk bonds and one issue of 2017 convertible notes, starting the clock on a 30-day grace period. There was little real immediate junk market reaction to the news, which came as something of a surprise, as there had been no prior speculation suggesting that the company would not make the payment.

A considerably more active name in the junk market on Tuesday was Bombardier Inc., whose bonds eased in tandem with its shares, after a Goldman Sachs equity analyst reiterated his previous “sell” recommendation on the stock and cut his price target, warning of more delays in the testing and the eventual rollout of the transportation equipment company’s latest generation of passenger airliner, the C Series.

Toys “R” Us Inc.’s bonds were seen doing better, with investors apparently looking beyond the wider loss it recently reported in its latest quarter, and instead taking heart from improved sales figures.

But overall, traders reported low levels of activity, theorizing that many market participants were just now straggling back in after the three-day weekend.

Statistical market performance indicators were seen mixed for a sixth consecutive session.

Ultra Petroleum pricing Wednesday

No deals priced on Tuesday, as market participants returned to their desks following the extended Labor Day holiday weekend in the United States.

Wednesday will likely be different, sources said.

Meanwhile the first post-Labor Day deal was announced late in the Tuesday session.

Ultra Petroleum plans to take part in an investor call at 10:30 a.m. ET on Wednesday to discuss its $700 million offering of 10-year senior notes (expected B2/BB-).

The deal is expected to price Wednesday afternoon.

Goldman Sachs, Citigroup, Wells Fargo and CIBC are the joint bookrunners for the acquisition financing.

Nyrstar starts roadshow

There was also news in the euro-denominated market on Tuesday.

Nyrstar Netherlands (Holdings) BV began a roadshow for a €350 million offering of five-year senior notes (B3/B-).

The roadshow wraps up on Friday, and the deal is set to price thereafter.

Goldman Sachs International is the global coordinator and joint bookrunner. Royal Bank of Scotland is also a joint bookrunner.

The Balen, Belgium-based mining and metals company plans to use the proceeds to fund capital expenditures, to refinance debt and for general corporate purposes.

Meanwhile Travis Perkins plc mandated Barclays, Lloyds Bank and Royal Bank of Scotland to lead investor meetings in London and Edinburgh ahead of an expected benchmark sterling-denominated offering of senior notes (/BB+/).

The Northampton, England-based home improvement retailer is a prospective first-time issuer.

Bombardier loses altitude

In the secondary market, among specific names, Montreal-based aircraft and railroad equipment manufacturer Bombardier’s bonds were among the busiest junk credits of the day.

A market source saw its 6 1/8% notes due 2023 ease by 3/32 point to finish at 101 21/32 bid on volume of over $26 million.

Its 6% notes due 2022 dipped by 3/8 point, going home at just over 101½ bid, with over $12 million of the bonds having changed around.

More than $10 million of its 5¾% notes due 2022 traded, slipping by ¾ point to 101¼ bid.

That erosion was in line with the loss of 1 Canadian cent, or 0.27%, to C$3.65 in its Toronto Stock Exchange-traded shares on volume of 8.1 million, or more than twice the norm.

The shares eased, and the bonds followed, after Goldman Sachs analyst Noah Poponak on Tuesday cut his price target to C$3.00 from C$3.20 and reiterated his previously announced “sell” recommendation on Bombardier. In a research note to clients, he warned that the company’s C Series jetliner, currently under development, is likely to see continued delays and “will negatively impact Bombardier's financial results and create negative catalysts for the next several years.”

Bombardier hopes the twin-engined C Series will compete with the similar Boeing 737 MAX, the Airbus A320neo and the Embraer 195 in the regional jet market. It made its first test flight a year ago, at which time Bombardier envisioned an additional two years of tests before the jet would go into service in the latter half of 2015.

But an engine fire during ground trials in May has grounded the jets, and Poponak said that with only a small fraction of the scheduled flight testing having already been done, but with about half of the allotted testing time already used up, Bombardier is unlikely to be able to step up its testing schedule to still roll out the new jet a year from now.

His assessment follows Friday’s announcement by Braathens Aviation AB, a Swedish regional air carrier that was supposed to be the first customer for the new plane with an order for 10 of the jets, that it “will not assume the role of formal launch operator.”

Braathens said in a quarterly filing that “due to increased uncertainty we are discussing other possible changes to the aircraft delivery schedule with Bombardier.”

Toys gains after numbers

Elsewhere, a trader said that Toys “R” Us’ 10 3/8% notes due 2017 gained 2 points to finish at 89¼ bid, with over $8 million of the Wayne, N.J.-based specialty retailer’s bonds having moved around.

Before the holiday weekend, Toys “R” Us had reported its second-quarter results, showing a wider loss than the previous year.

But once market players returned from the long weekend, the bonds were trending higher.

A second trader saw the 10 3/8% notes at 89 bid, 89¼ offered, up from the day’s opening levels around 88½.

At another desk, its 7 3/8% notes due 2018 were seen up over a point at 78¾ bid.

For the quarter ended Aug. 2, Toys “R” Us posted a net loss of $148 million, versus year-earlier red ink of $113 million.

But total sales improved nearly 3% to $2.44 billion, and domestic same-store sales – a key retailing industry performance metric – increased 1.5%.

International sales gained 2.5% year over year.

The company attributed the bigger loss to a hefty discounting effort that began at the beginning of the company’s fiscal year. The discounts were aimed at clearing out shelves to make room for new goods for the upcoming holiday season. Management said in the earnings release that the inventory clean-out had come to an end, however, leaving it well positioned going into the holidays.

Endeavour skips interest payment

Late in the day – after 4 p.m. ET, when things had pretty much wound down – Endeavour International announced that that it decided to not make Tuesday’s scheduled $33.5 million interest payment on its 12% first-priority notes due March 2018, its 12% second-priority notes due June 2018 and its 6½% convertible senior notes due November 2017.

The company said that it is in ongoing talks with its various debtholders on potential terms for restructuring the notes in order to deleverage.

Under the notes’ indentures, Endeavour has a 30-day grace period during which it may elect to make the interest payment and cure any potential event of default for non-payment – but it acknowledged that after that, the noteholders could accelerate the repayment terms on the notes, possibly creating a cross-default on other company obligations.

The notes were little traded during the day, and no immediate trading was seen on Tuesday in the aftermath of the announcement, which could be considered something of a surprise since there had been no prior speculation roiling the market over whether or not the energy company would or would not make the notes repayment.

In trading before the announcement was made, the 12% first-lien notes were seen trading at 93, actually up 2 points from where they had finished last week, but on only a handful of odd-lot trades, with no round-lot transactions seen, a market source said.

The 12% second-priority notes were seen having dropped to closing levels around 38 bid – well down from last Wednesday’s 47 5/8 bid level – but again, on only a bunch of odd-lot trades that had been done hours before the announcement that the interest payments would be skipped.

Indicators again mixed

Overall, a trader said that the session “seemed like kind of a snoozer.”

“You had many people still coming back in after the long weekend, school starting [in many areas], the start of a new month – all types of excitement rolled into one day,” he said, ironically.

Statistical indicators of junk market performance remained mixed on Tuesday for a sixth consecutive day and a ninth mixed session in the last 10 days, a streak broken only by last Monday’s higher-across-the-board session.

The KDP High Yield Daily index was down by 5 basis points on Tuesday to end at 73.95, its third straight loss. It had eased by 2 bps on Friday. The index was not published on Monday due to the Labor Day legal holiday.

Its yield rose by 2 bps to 5.05%, its fourth consecutive widening. On Thursday, the yield had edged up by 1 bp for a third straight session.

The Markit CDX Series 22 index posted its first gain after five straight losses, firming by 1/16 point on Tuesday to close at 108 1/16 bid, 108 3/32 offered. It had retreated by 2/32 point on Friday and was marginally easier on Monday, when the index had been published even though there was virtually no trading going on.

The widely followed Merrill Lynch High Yield Master II index finally surrendered after 16 straight sessions on the upside, losing 0.038% on Tuesday – the first downturn seen since Aug. 8. The index had improved on Friday by 0.016%, followed by a 0.018% gain on Monday, when the index was published despite the official market shutdown.

The latest downturn dropped the index’s year-to-date return to5.806%, down from 5.847% on Monday, its peak level for the year so far, and from 5.808% on Friday.

Stephanie N. Rotondo contributed to this review.

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