CMA CGM high-yield bonds dropped sharply in Europewan trading on Wednesday after it reported a lower-than-expected liquidity figure, and reports circulated that it may breach some of its loan agreements.
The French ocean carrier’s 325 million euro 2019 bonds with an 8.875 percent coupon have fallen more than 40 percent since their launch in April, and are currently bid at 57 euros, according to Tradeweb.
The bonds have fallen 17 points since Monday and dropped approximately four points after the statement, one high-yield investor told Reuters. The bonds dropped by 10 points on Tuesday after a French media report said the company is at risk of breaching a covenant on its loans at the end of the year,
The bonds have underperformed in the high-yield market since their launch, dogged by a series of negative headlines including an antitrust probe, concerns about possible U.S. sanctions over its trade with Iran and a weak industry operating performance.
The privately owned carrier said Wednesday that its liquidity stood at $675 million at the end of July, excluding cash proceeds from on-going disposals and any potential further investment from Turkey’s Yildirim Group, a figure that the investor said was lower than expected. A spokesman for the company declined to give any more information than what was written in the statement it issued Wednesday.
"You have to go right back to the beginning to when the bond was first done. People got full allocations initially, which meant they could not add to their position and which offered no technical support whatsoever," said the investor, who still owns some of the bonds but has reduced holdings significantly.
"In addition, you had to believe in the story that freight rates would hold up. But we are in a very different world now. Freight rates have gone down and the company is being squeezed," the investor said.
Its bond was managed by left lead BNP Paribas, along with Citibank, Deutsche Bank, Natixis and Societe Generale.
"CMA CGM closely follows the performance of its bonds in the secondary market and is taking the current poor performance very seriously," the company’s statement said. "While our operating environment is difficult and volatile, we believe that we are prepared for such market conditions," it added.
A high-yield syndicate banker familiar with the bond deal said, “It's been a perfect storm for the company, and not something that could have been predicted. There has been everything from weak sector performance, an (EU) antitrust probe about price fixing, fears about U.S. sanctions and Maersk adding capacity to one of its main routes. Shipping is a leading indicator on the economy and the next big data flow will be at the end of August when the company announces results."
The European Commission antitrust probe also involves other shipping firms including Germany's Hapag-Lloyd and Moller-Maersk.
CMA is expected to report second quarter results later this month, and said last week that it expects to stay in the black this year despite pressure on freight rates.
--Contact Peter T. Leach at email@example.com.