Tuesday 17 April 2018 by FIIG Research Company updates

Company updates – AAPT, Capitol Health, Mallinckrodt, Petrobras and Sprint

This week, AAPT new USD bond coverage, Capitol Health to redeem outstanding notes in May, Mallinckrodt bond yield surges after whistle blower lawsuit filed, NEXTDC launches fully underwritten institutional placement, Moody’s upgrades Petrobras and Sprint restarts merger talks

Adani Abbot Point Terminal

Research initiates coverage on AAPT’s USD denominated 4.45% senior secured notes due 2022, available to wholesale investors here. This bond has been added to the DirectBonds list, see the Factsheet here.

For retail investors, we reiterate our recommendation on AAPT’s AUD 6.10% notes due 2020 in this update here.

The following AAPT bonds are available to trade:

  • Adani Abbot AUD 7.10% May 2020 at YTW – 5.45%%pa
  • Adani Abbot USD 4.45 December 2022 bond at YTW – 4.78%pa (at 1 December 2019 call date)

Read the Adani Abbot Point Terminal research compendium report*

Capitol Health early redemption notice

On 9 April 2018, Capitol Health Limited (Capitol Health) released an early redemption notice for its 8.25% fixed rate notes due 10 May 2020.

The notice gives Capitol Health the right to redeem all outstanding notes in full on 10 May 2018. The redemption amount per note will be 103% of the outstanding principal amount of each note redeemed, plus accrued but unpaid interest.

See the note in this week’s WIRE or read the Capitol Health research compendium report*

Dean Foods down to a six year low

On 17 April 2018, Bloomberg reported that US milk bottler Dean Foods fell as much as 8.9% to a six year low after Goldman Sachs Group Inc, downgraded its rating on the stock to sell from neutral. It seems Americans are turning away from milk as they indulge in other beverage options and non dairy substitutes gain popularity.

Earlier this year, Dean Foods announced a cost cutting initiative and it plans to end supply contracts with some farmers as the processing sector gets more competitive.

The Dean Foods 6.50% March 2023 USD bond rated BB-, is available at YTW of 6.33%pa (at 15 March 2021 call date).

Mallinckrodt subject to whistle blower lawsuit

On 16 April 2018, Bloomberg reported that Mallinckrodt’s (MNK) bond yields rose following a former employee filing a whistle blower lawsuit against the global pharmaceutical drugs manufacturer on 10 April 2018. The employee was fired in retaliation for repeatedly warning the company about a host of allegedly illegal activities designed to boost sales of a key drug.

Indicative yields for MNK bonds, all rated BB- are:

  • MNK 4.88% April 2020 USD bond at YTW – 5.63%pa
  • MNK 5.75% August 2022 USD bond at YTW – 10.1%pa
  • MNK 5.63% October 2023 USD bond at YTW – 10.32%pa

NEXTDC launches a fully underwritten institutional placement

On 17 April 2018, NEXTDC launched a fully underwritten institutional placement to raise AUD281m. It intends to purchase three new commercial property sites for future data centre developments: Sydney (“S3”), Melbourne (“M3”), and Perth (“P2”) (“New Sites”).

This is in line with NEXTDC’s strategy to own its new properties, as opposed to the sale and lease back undertaken originally when the group needed to recycle capital to continue to grow. The additional equity capital is credit positive, and risks associated with new developments are tempered given its experience - seven data centres operational and one data centre under construction.

NEXTDC continues to experience very strong demand for its data centre services. Accordingly, it has taken the strategic decision to prepare for future growth and to mitigate the risks of the company running out of new capacity in its key markets by purchasing the New Sites.”

The company reaffirms its FY18 earnings guidance provided at its 1H18 results:

  • Underlying EBITDA in the range of AUD58m to AUD62m
  • Revenue in the range of AUD152m to AUD158m
  • Capital expenditure on existing facilities between AUD220m and AUD240m

The NEXTDC 6.25% June 2021 AUD bond is available at YTW of 4.36%pa (at 9 June 2019 call date). Read the NEXTDC research compendium report here*

Moody’s upgrades Petrobras’ headline rating

On 11 April 2018, Moody’s Investors Service (Moody’s) announced the upgrade of Petrobras’ headline rating to Ba2 from Ba3, with a stable outlook. Rating action follows recent affirmation by Moody’s of Brazil’s Ba2 rating and change of outlook to stable from negative. Despite this, a key uncertainty for the rating agency is the Lava Jato case, which involved Brazilian government parties appointing corrupt officials to Petrobras’ senior executive positions.

The following Petrobras bonds, all rated BB- :

  • Petrobras GBP 6.25% December 2026 bond at YTW – 4.75%pa
  • Petrobras USD LIBOR + 2.14% January 2019 bond at YTW – 2.45%pa
  • Petrobras USD 7.38% January 2027 bond at YTW – 5.63%pa

Sprint and T-Mobile restart merger talks

On 11 April 2018, CNBC reported that Sprint Corporation (Sprint) and T-Mobile have restarted merger discussions. Shares of telecom company Sprint have increased more than 20 per cent following the news. The companies ended talks in November last year but could not reach a deal. Tensions between German company Deutsche Telekom (owns 63% of T-Mobile) and Japanese investment conglomerate Softbank (owns 85% of Sprint) have complicated talks in the past.

While both companies significantly lag industry leaders AT&T and Verizon, a merger would lend each company the scale necessary to compete. T-Mobile and Sprint are currently the third and fourth largest wireless carriers in the United States.

The following Sprint bonds are available to trade:

  • Sprint USD 7.88% February 2023 bond; rated B at YTW – 5.62%pa
  • Sprint USD 7.63% February 2025 bond; rated B at YTW – 6.01%pa

Please note the indicative yield to worst (YTW) for bonds is accurate as of 17 April 2018, subject to change. Standard & Poor’s ratings are shown.


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