Tuesday 01 May 2018 by FIIG Research Company updates

Company updates – Aurizon, Barminco, BlueScope, Ensco, Mackay Sugar, Newcrest, Transocean, Sprint, Windstream

This week, Aurizon applies for a judicial review, BlueScope partial early redemption, Mackay Sugar update, Newcrest reports third quarter results, T-Mobile agrees to acquire Sprint for USD26.5bn, and S&P downgrades Windstream corporate rating. First quarter results from USD issuers Barminco, Ensco, and Transocean

Aurizon submits application for a judicial review

On 30 April 2018, Aurizon Network Pty Ltd (Aurizon) applied to the Queensland Supreme Court for a judicial review on the Queensland Competition Authority’s draft decision for the network’s regulated tariff price reset.

The reasons behind the application is unclear, but it is expected to further delay the current process to reset the regulated tariffs payable for use of Aurizon’s Queensland rail network. The new tariff under process was supposed to be set for a four year period starting 30 June 2017. Prior to the application, the new tariff was expected to be in place by December this year.

With the judicial process, it is now likely that the new tariff will not be in place until mid to late 2019 at the earliest. In the interim, the current arrangements will likely be extended as and when required. The latest extension was initiated in early April to enable existing tariffs to apply until the end of December 2018.

The following Aurizon USD bonds rated BBB+ are available to trade:

  • Aurizon 5.75% October 2020 bond – YTW of 2.86%pa
  • Aurizon 4.0% June 2024 bond – YTW of 3.76%pa

Barminco 1Q18 results

On 30 April 2018, Barminco Holdings Pty Ltd (Barminco) released its 1Q18 results

Key points:

  • Reported EBITDA of AUD54.1m (or AUD75.6m on a proportionate basis, accounting for Barminco’s 50% in the AUMS joint venture with Ausdrill). The company has indicated that 2H18 is likely to be broadly flat
  • The table below shows an estimate of annual revenue at risk based on contract expiry
Estimated contract expiry
FY18 75
FY19 100
FY20 105
FY21 130
  • Based on EBITDA margin of about 20%, the loss of the contract expiring in the fourth quarter would impact EBITDA by about AUD15m, or about a 15% decrease
  • Two contracts expiring in 3Q18 were extended at the start of 2018. No detailed information is available on the new terms, but it is believed the extension is for an additional two years for each contract

Operational points:

  • Barminco’s largest contract, Sunrise Dam estimated to generate about AUD100m of revenue, is expiring in 4Q19. This is the longest contractual relationship that Barminco has with any of its existing customers
  • Three of the four contracts in the AUMS joint venture are expiring in 3Q19
  • Moody’s Investors Service (Moody’s) upgraded Barminco’s senior secured notes to B1 in May 2017, from the B2 rating at issuance of the notes. The rating agency expects good earnings in FY18 with revenue broadly flat, but improved margins which would take leverage in the low 4’s. Moody’s flags the company’s track record in terms of contract renewal as a positive
  • S&P Global Ratings has a stable outlook on the notes, although its rating is one notch lower at single B

The following Barminco USD bonds are available to trade:

  • Barminco 6.625% May 2022 bond; rated single B – YTW of 6.91%pa (mentioned above)
  • Barminco 9% June 2018 bond (not rated) – YTW of 1.98%pa

BlueScope early redemption event

Holders of the BlueScope 6.5% May 2021 senior secured notes issued by BlueScope Steel Finance Ltd (BlueScope) would have received an email containing a partial early redemption notice.

The company intends to redeem early USD200m of its USD500m senior secured notes on issue, with an aggregate price of 103.25 of the outstanding principal amount of each note being redeemed. The event is scheduled for 16 May 2018.

The BlueScope USD 6.5% May 2021 bond rated BBB is available at yield to maturity of 5.2%pa. Please call your relationship manager if you have any questions regarding the redemption notice.

Ensco 1Q18 results

On 27 April 2018, Ensco plc (Ensco) reported its 1Q18 results.

Key points:

  • Operating revenues down to USD417m, compared to USD471m in the previous quarter
  • Net loss of USD140.5m, compared to USD24.6m in the previous quarter
  • EBITDA was at USD63.9m, 62% (USD103.1m) below 1Q17. This was driven by lower revenue, which was down USD54m due to lower day rate and lower utilisation, and increased cost of USD47.1m
  • Capital expenditure in the quarter was at USD269m, in line with 1Q17
  • Cash position was up USD20m over the quarter, mainly a result of new debt issuance (USD1bn issue and USD800m repaid)
  • Liquidity position at USD900m of cash, USD2bn of liquidity lines and no maturity until 3Q20

The Ensco USD 5.20% March 2025 bond rated BB- is available to trade at yield to worst of 8.37%pa.

Mackay Sugar

Mackay Sugar Ltd has released its first half financial results to November 2017. The company has also released its April update regarding the recapitalisation process.

Please see the full update on the FIIG website available to wholesale and retail clients. Read the Mackay Sugar research compendium report* 

Newcrest third quarter production results

On 26 April 2018, Newcrest Mining Limited (Newcrest) released its March 2018 Quarterly Report.

Key points are:

  • Gold (576oz) and copper (19kt) production down 6.0% and 15.5% respectively from the prior quarter
  • Realised gold price at USD1341/oz from USD1288/oz in the prior quarter
  • Of the company’s three main production sites:
    • Cadia was down 20.7% when production stopped in early March following the collapse of a tailing dam. Production gradually restarted later in the month and Newcrest received approval in late April to use an old pit for tailing storage
    • Production swings at Lihir and Telfer broadly cancelled each other, with improvements in processing at Lihir offset by unplanned downtime at Telfer
  • All in sustaining cost down to USD826/oz from USD829/oz
  • FY18 guidance updated following Cadia embankment slump, Telfer production and updated economic assumptions

The following Newcrest USD bonds all rated BBB- are available to trade:

  • Newcrest 4.45% November 2021 bond – YTW of 3.81%pa
  • Newcrest 4.20% October 2022 bond – YTW of 3.95%pa
  • Newcrest 5.75% November 2041 bond – YTW of 5.32%pa​

T-mobile to acquire Sprint for USD26.5bn in bet on networks

On 30 April 2018, Bloomberg reportedBloomberg reported that T-Mobile US Inc. (T-Mobile) agreed to acquire Sprint Corp. (Sprint) for USD26.5bn in stock. The acquisition is a wager for the carriers to team up and build a next-generation wireless network ahead of industry leaders Verizon Communications Inc. and AT&T Inc.

In a statement released on 29 April 2018, the combination will value each Sprint share at 0.10256 of a T-Mobile share, or about USD6.62 a share based on T-Mobile’s closing price of USD64.54 on Friday 27 April. The implied enterprise value is about USD59bn for Sprint and USD146bn for the combined companies. Under the terms of the deal, Deutsche Telekom AG (German company that controls T-Mobile) will take 42 per cent ownership stake, and SoftBank Group Corp (Japanese owner of Sprint) takes 27 per cent.

Following the news, Moody’s Investors Service (Moody’s) has placed Sprint’s ratings on review for an upgrade.

The following Sprint USD bonds, both currently rated single B are available to trade:

  • Sprint 7.875% September 2023 bond – YTW of 5.91%pa
  • Sprint 7.625% February 2025 bond – YTW of 6.25%pa

Transocean 1Q18 results

On 30 April 2018, Transocean Ltd (Transocean) reported its 1Q18 results.

Key points:

  • Adjusted normalised EBITDA at USD170m
  • Total contract drilling revenues at USD664m, up from USD629min 4Q17
  • Revenue efficiency was 91.5 percent, compared with 92.4 percent in the prior quarter
  • Operating and maintenance expense was USD424m, compared with USD386m in the prior quarter
  • Adjusted net loss was USD210m, USD0.48 per diluted share. This compares with adjusted net loss of USD93m, USD0.24 per diluted share in the prior quarter, excluding USD18m of net unfavourable items
  • Cash flows from operating activities at USD103m, compared with USD244m in the prior quarter
  • During the first quarter, the company acquired Songa Offshore SE, adding USD3.7bn in contract backlog
  • The combined company’s contract backlog was USD12.5bn as of the April 2018 Fleet Status Report

The Transocean USD 9.0% July 2023 bond rated B+ is available at a yield to worst of 5.99%pa (indicative at redemption date of 15 July 2020).

Windstream corporate credit rating downgraded

On 27 April 2018, Windstream Holdings Inc. (WH) received the following downgrades by S&P Global Ratings (S&P):

  • Corporate credit rating lowered to ‘B-‘ from its previous single B rating. The outlook is negative
  • Windstream Services LLC’s (Windstream) and Windstream Holding of the Midwest Inc.’s senior secured debt rating was lowered to ‘B+’ from its previous ‘BB-‘ rating. The recovery rating remains at ‘1’, indicating S&P’s expectation of a very high (estimated 95%) recovery in the event of payment default
  • Windstream’s senior unsecured debt lowered to ‘CCC’ from its previous ‘B-‘ rating and a revised recovery rating to ‘6’ from ‘5’. The recovery rating indicates S&P’s expectation of negligible (estimated 5%) recovery in the event of payment default

The downgrade and negative outlook follows WH’s weak long term business prospects due to ongoing secular industry pressures. The rating agency expects these pressures will contribute to declining revenue and cash flow, making it difficult for WH to reduce leverage over the foreseeable future. Additionally, the negative outlook incorporates S&P’s view that WH’s capital structure may not be sustainable in the long term.

The following Windstream USD bonds as mentioned are available to trade:

  • Windstream 7.75% October 2020 bond; rated B+ available at YTW of 14.82%pa
  • Windstream 8.625% October 2025 bond; rated CCC available at YTW of 10.18%pa

​​Please note yield to worsts are accurate as at 1 May 2018, subject to change. S&P ratings are shown. 

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