Tuesday 19 June 2018 by FIIG Research Company updates

Company updates – Ansett Aviation, CKI offer for APA, Fortescue Metals, JEM Southbank, Talen Energy

This week, Ansett Aviation up for sale, CKI makes offer for APA, Fortescue redeems 2022 callable notes, JEM Southbank notice of upcoming refinancing, Moody’s downgrades Talen and updated Factsheets

Ansett Aviation Training may be sold

On 13 June 2018, The Australian reported that Champ Ventures may be working on a deal to sell Ansett Aviation Training (AAT).

The article states that management, backed by Quadrant Private Equity, is bidding for the company with the offer estimated at AUD180m.

In terms of the 7.50% 13 November 2020 bond, it has an option for the issuer to call it next on 13 November 2018 at 102%. AAT must give at least 30 days notice (and not more than 60 days) if it intends to call the Notes.

There is also a change of control put in noteholders’ favour at 101% until 13 November 2018, then at 100% after that. AAT must notify bondholders of a change of control within 30 days.

The AAT AUD 7.50% November 2020 bond is available at yield to worst of 4.00%pa for all investors.

CKI offer for APA considered neutral for AGN, DBNGP and EPG

On 13 June 2018, a consortium comprising CK Infrastructure, CK Asset Holdings and Power Assets Holdings (CKI Consortium) has tabled a non binding indicative offer to acquire 100 per cent of the securities in APA Group, Australia's largest gas network owned operator. 

The CKI Consortium proposed to offer AUD11.00 per stapled security, representing a premium of about 33% over APA's share price prior to the announcement. 

We have provided a research update on the offer available here on the FIIG website.

Fortescue Metals redeems remaining callable notes

Holders of the FMG USD 9.75% March 2022 callable notes issued by Fortescue Metals Group (FMG) should have received an email regarding the company’s announcement of a mandatory early redemption event.

FMG intends to redeem all of the remaining callable notes on issue (as described above), with an aggregate call price of 109.75% of the outstanding principal amount of each note being redeemed. The early redemption will take place on or soon after 28 June 2018.

The callable notes are the final repayment of senior secured debt that FMG had issued over the years. Since 2017, FMG has been gradually transitioning its debt portfolio toward unsecured instruments which are more common for higher rated companies. The company’s balance sheet is now more aligned structurally with its peers BHP and Rio Tinto, although noting the difference in leverage.

JEM Southbank notice of refinancing progress

On 15 June 2018, Axiom Education Queensland released a notice to bondholders of JEM Southbank regarding the company’s progress of its upcoming refinancing with more details to be made available later this week.

The refinancing of the debt due in June 2020 (but with a scheduled maturity date of June 2018) has been expected for a while, especially since the company launched an expression of interest (EOI) to financiers in March this year and Moody’s Investors Service (Moody’s) assigned a preliminary rating to a syndicated bank facility of a similar amount.

We expect the refinancing to be completed in late June or early July this year. Based on the information released by Moody’s, it would appear that the new facility will gradually amortise until the end of the concession, thereby removing the need for any future refinancing.

The following JEM Southbank bonds are available to trade for all investors:

  • JEM AUD 6.637% June 2018c bond available at YTW – 1.44%pa
  • JEM AUD June 2035 indexed annuity bond available at YTW – 4.30%pa

Moody’s downgrades Talen

On 18 June 2018, Moody’s Investors Service (Moody’s) downgraded Talen Energy Supply, LLC’s (Talen) corporate family rating (CFR) to ‘B2’ from ‘B1’. The outlook for Talen is stable. Other downgrades include:

  • Probability of default (PD) to ‘B2-PD’ from ‘B1-PD’
  • Senior secured debt to ‘Ba2’ from ‘Ba1’
  • Senior unsecured guaranteed debt to ‘B2’ from ‘B1’
  • Senior unsecured, nonguaranteed debt to ‘Caa1’ from ‘B3’

At the same time, Moody's assigned a rating of B2 to approximately USD131 million of guaranteed revenue bonds issued by the Pennsylvania Economic Development Finance Authority (PEDFA) that are being remarketed by Talen.

The downgrade follows Talen's plans to remarket, rather than repay, its upcoming PEDFA obligations. In addition, the downgrade considers the results of the most recent (2021/2022) PJM Interconnection (PJM) capacity auction as well as the planned restructuring of its New MACH Gen non recourse subsidiary.

The B2 CFR is driven by the company's relatively aggressive financial policies in the face of challenging market conditions that will continue to negatively impact revenue and cash flow.

The following Talen bonds all rated ‘B+’ are available to trade for wholesale investors:

  • Talen USD 9.50% July 2022 bond available at YTW – 9.17%pa
  • Talen USD 6.50% June 2025 bond available at YTW – 11.00%pa

S&P update on Sprint

On 13 June 2018, S&P released an update on Sprint Corporation (Sprint) noting that its ratings are on CreditWatch with positive implications following the company’s agreement to merge with T-Mobile US Inc. in an all stock deal.

Other key points:

  • The deal has an implied enterprise value of about USD146bn
  • Aim to resolve the dual CreditWatch listings when the transaction closes, most likely in the first half of 2019. S&P says an upgrade for Sprint could be as high as three notches, with the pro forma entity likely rated at 'BB'
  • Expected net adjusted leverage will remain elevated, in the mid to high 3.0x area over the next few years (low to mid 5x excluding the benefits of lease accounting)
  • Funds from operations (FFO)-to-total debt of around 20%, which is strong relative to the financial risk assessment
  • Elevated postpaid churn of about 1.8%, which is significantly higher than its peers, due to mature industry conditions and aggressive competition

In related news, it was reported that a US district court judge has cleared the merger of US telecoms giant AT&T and media firm Time Warner. This is a major defeat for government regulators where the US had sued to block the deal, arguing that it would reduce competition in pay TV and lead to higher prices for consumers. The ruling is expected to lead to other mergers and acquisitions. However we note that this was a vertical integration where proving materially reduced competition may have been more difficult compared to the horizontal Sprint/T-Mobile merger that reduces major competitors from four to three.

The following Sprint bonds all rated single ‘B’ are available to trade for wholesale investors:

  • Sprint USD 7.875% September 2023 bond at YTW – 6.09%pa
  • Sprint USD 7.625% February 2025 bond at YTW – 6.26%pa

Updated Factsheets

The following Factsheets for wholesale investors have been updated:

  • Mirvac AUD 5.75% senior unsecured notes Factsheet
  • WA Stockwell AUD 7.75% June 2021 senior secured notes Factsheet (available for retail investors)
  • StockCo Holdings AUD 8.75% October 2022 unsecured notes Factsheet
  • Plenary Bond Finance Unit Trust AUD 6.50% May 2024 fixed rate amortising notesFactsheet

 A list of all recent new and updated Factsheets is available here.

Please note yield to worst is accurate as of 19 June 2018. S&P ratings are shown.