Credit Focus

KraftHeinz’s entry into the junk bond market will test long term high yield bond investors’ appetite. The conglomerate is a star fallen angel that is set to release $13B of notes with a maturity of 10 years, much higher than the 3.5 year average in the index Heinz is set to join. Investors will be tested in assessing the payoffs for these longer high yield bonds.

Moody’s has downgraded Technicolor to Caa1 matching S&P’s sentiment who downgraded the firm to B-. The French Media solutions and service provider’s fall is due to their fragile short term liquidity. The firm’s FOCF was -8.3%, far below S&P’s projection of +6.2%. Both rating agencies anticipate a recovery for Technicolor following a €300M capital increase; providing necessary headroom for their restructuring.

Rayonier closed their quarter, ending 31st De-cember, with a $32M operating loss; a year ago in the same quarter they had $17M in income. Weak commodity prices from international trade disputes and the fallout from the coronavirus have contributed to their issues. The firm will focus on improving cash flow by cutting capital spending. Rayonier’s 5.5% 2024 notes fell 5.5 cents.

Persistent declines in Nostrum Oil’s hydrocarbon product has weakened their cash flow genera-tion, prompting Moody’s to downgrade their 2022 notes to Caa3 from Caa2, reflecting the increased likelihood of default. Refinancing is unlikely as there is no apparent strategy to materially restore their production in Kazakhstan. The debt to earnings ratio is expected to rise to 10x by 2021.

Cleveland Cliffs has released $550M (Ba2/BB) secured notes and $400M (B2/B) unsecured notes. The mining company is under pressure to close their deal to acquire AK Steel, where they will be refinancing their almost $2Bn debt. Cliff’s leveraged position following the acquisition, lower expected profits, and delayed benefits from integrating with AK have contributed to the downgrade, however, Cliff’s future ratings all depend on their adjusted debt to EBITDA ratio.