Morning Commentary: MEG Energy bonds tumble; Energizer, HCA note offerings on deck

By Paul A. Harris

Portland, Ore., Jan. 17 – Junk opened a touch lower on Thursday against a backdrop of mixed-to-lower stock prices and weaker oil prices, a New York-based bond trader said.

High-yield ETFs were flat to slightly better at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.07%, or 6 cents, to $84.09 per share.

Bonds of MEG Energy Corp. fell precipitously on news that Husky Energy Inc. abandoned a hostile takeover bid subsequent to seeing that bid rejected by MEG shareholders, sources said.

The MEG Energy 6½% senior secured second-lien notes due January 2025 were down 7 points at 98 bid. The 6 3/8% senior notes January 2023 fell 13 points to 87¼ bid on the bust-up news.

In addition to the shareholder rejection, Husky’s decision to bail on the hostile takeover was also informed by “negative surprises” in the business and economic environment since the tender for MEG shares launched in September, according to a Thursday press release from Husky.

The government of Alberta departed from free market principles, introducing uncertainty through the imposition of government-mandated production cuts, the company said.

Husky also cited continued lack of meaningful progress on Canadian oil export pipeline developments.

Energizer, HCA on deck

The primary market was poised to see its second consecutive active session of 2019, on Thursday, with a pair of deals on deck to price.

Energizer Holdings, Inc. talked its $600 million offering of eight-year senior notes (B2/B+) to yield in the 7 7/8% area.

Books close at 12:30 p.m. ET on Thursday, and the deal is set to price and allocate thereafter.

Official talk comes tighter than initial talk of 8% to 8¼%, according to market sources.

At that initial talk the deal was heard to be going well, playing to orders in excess of $2 billion, a trader said.

Citigroup Global Markets Inc. is the lead bookrunner.

And HCA Inc. plans to price $1 billion of 10-year senior bullet notes (existing senior unsecured ratings Ba2/BB-) in a Thursday drive-by.

Initial price talk is in the low 6% area.

UBS Investment Bank is the left bookrunner.

Aside from those Thursday deals there is one other offering on the active forward calendar.

Acrisure LLC is in the market with $500 million of senior secured notes due 2024 (B3/B) expected to price on Friday.

Initial talk for Acrisure is in the mid 8% area, a trader said.

Wednesday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Wednesday, a bond investor said.

High-yield ETFs saw $310 million of inflows on the day.

Actively managed high-yield funds saw $120 million of inflows on Wednesday, the investor said.

News of Wednesday’s daily flows precedes a closely followed report, expected later Thursday, on the weekly flows of the funds, from Lipper US Fund Flows.

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