Peabody’s planned new issue prompts concerns; Antero deal falters; Energy XXI ends weaker

By Stephanie N. Rotondo and Paul A. Harris

Phoenix, March 4 – Gyrating oil prices and a weak coal market have sent many names in the high-yield energy sector scrambling, but that has been a boon for the new issue space – for this week at least.

On Monday, Peabody Energy Corp. launched a roadshow for a $1 billion offering, the proceeds of which are slated to fund a tender offer. Antero Resources Corp. then brought a new deal on Tuesday, which saw so much demand that it was upsized.

On Wednesday, Energy XXI Ltd. held a conference call to discuss a proposed $1.25 billion offering of second-lien notes. And Laredo Petroleum Inc. said it was planning a sale of $350 million senior unsecured notes due 2023.

Though all of these issuers are planning to reduce their debt in one way or another via proceeds from the debt offerings, investors appear to be waiting to go skipping along to the bank, and all of said issuers’ debt was seen drifting lower in midweek trading.

Meanwhile, market indicators were soft Wednesday, following in line with the equity markets.

One market source said the CDX North American High Yield Series 23 index was off almost three-quarters of a point at 107.42 bid, 107.5 offered.

The KDP High Yield index then fell to 71.83 from 71.94, with yields widening to 5.16% from 5.12%.

Zayo taps 6% notes

A busy Wednesday session in the primary market saw five issuers cross the finish line with single-tranche deals, raising a combined total of $2.66 billion.

Four of the five deals came as drive-bys.

Only one was upsized.

Executions were a mixed bag, with one of the five deals coming at the tight end of talk, three coming on top of talk and one coming at the cheap end of talk.

Zayo Group, LLC and Zayo Capital, Inc. priced a $730 million add-on to their 6% senior notes due April 1, 2023 (existing ratings Caa1/CCC+) at 101 to yield 5.796%.

The reoffer price came at the cheap end of price talk in the 101.25 area.

Joint bookrunner Barclays will bill and deliver for the debt refinancing and general corporate purposes deal. Goldman Sachs, Morgan Stanley, RBC, SunTrust, Citigroup and J.P. Morgan were also joint bookrunners.

Comstock first-lien deal

Comstock Resources, Inc. priced a $700 million issue of five-year senior secured first-lien notes (Ba3/B+) at par to yield 10%, on top of yield talk.

The book was deal-size heading into the late New York morning on Wednesday, according to a buyside source.

BofA Merrill Lynch was the left bookrunner. BMO Securities was the joint bookrunner.

The Frisco, Texas-based independent oil and gas acquisition, exploration and development company plans to use the proceeds to repay its revolver and for general corporate purposes.

Pilgrim's Pride accelerates timing

Pilgrim's Pride Corp. priced a $500 million issue of 10-year senior notes (B2/BB) at par to yield 5¾%, on top of yield talk.

Timing was moved ahead, as the deal was announced earlier in the Wednesday session as Thursday business.

Credit Suisse, Barclays, Rabo, RBC and Wells Fargo were the joint bookrunners.

The Greeley, Colo.-based chicken producer plans to use the proceeds to repay debt and for general corporate purposes.

Avis Budget upsizes

Avis Budget Car Rental, LLC and Avis Budget Finance, Inc. priced an upsized $375 million issue of 10-year senior notes (B1/B+) at par to yield 5¼%.

The quick-to-market deal was upsized from $350 million.

The yield printed on top of yield talk.

BofA Merrill Lynch, Barclays, Citigroup and Morgan Stanley were the joint bookrunners for the debt refinancing.

Laredo Petroleum prices tight

Laredo Petroleum, Inc. priced a $350 million issue of eight-year senior notes (B2) at par to yield 6¼%, at the tight end of the 6¼% to 6½% yield talk.

Initial yield guidance was in the mid-6s, a buyside source said.

BofA Merrill Lynch was the left bookrunner for the debt refinancing. BMO, Goldman Sachs, Wells Fargo and SG were the joint bookrunners.

The Tulsa-based energy company plans to use the proceeds, together with a portion of the proceeds from its previously announced common stock offering, to redeem all of its 9½% senior notes due 2019.

Big late-week deals

Looking ahead, the active forward calendar still holds two sizable deals that are expected to clear before Friday's close.

Dealers have yet to circulate formal talk on either one.

Guidance on the Peabody Energy $1 billion offering of seven-year senior secured second-lien notes (B2/BB/+BB-) began in the mid-9s to 10%, according to an investor who said that the market had heard a $650 million order book size heading into the Wednesday mid-day.

That talk subsequently pushed out to an 11% context, a trader said in the early afternoon.

BofA Merrill Lynch and Morgan Stanley are the joint physical bookrunners for the debt refinancing deal.

Meanwhile the Energy XXI Gulf Coast, Inc. $1.25 billion offering of five-year senior secured second-lien notes (B2/B+) has early guidance of a 12% all-in yield, an investor said.

Last week, this investor advised Prospect News that the banks have been pitching second-lien structures to the energy companies.

If Energy XXI Gulf Coast's deal goes well, look for other similarly structured deals to follow in the sector, the investor said on Wednesday.

Credit Suisse, Deutsche Bank, Imperial Capital, Wells Fargo, Citigroup, Jefferies, RBS and UBS are the joint bookrunners for the Energy XXI Gulf Coast deal.

ETF outflows intensify

For the second consecutive day, high-yield exchange-traded funds saw outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

And Tuesday's negative $249 million was quite a lot more meaningful than the $16 million outflow sustained during the Monday session, the source recounted.

Meanwhile flows remained positive for actively managed funds, which saw $220 million of daily inflows on Tuesday.

Peabody deal raising concerns

A trader said Peabody Energy’s planned $1 billion offering of second-lien notes due 2022 might be hitting snags.

“There are some concerns about how that second-lien deal is going,” he said.

As such, the company’s debt was being pushed lower.

The 6% notes due 2018 fell to an 87 to 88 context from 90 to 91 previously, he said.

“The longer-dated paper was down a few more points as well,” he said.

Another trader deemed the 2018 maturity down a deuce at 87¾. He also saw the 6¼% notes due 2021 falling over 3 points to 73¾, as the 6½% notes due 2020 declined almost 2 points to 78½.

And the 7 3/8% notes due 2018 – the subject of a tender offer, which will be funded via proceeds from the second-lien offering – were called down over a point at 108.

“I guess that new deal is weighing on the bonds,” the trader said.

Holders of said notes will receive $1,072.71 per each $1,000 of notes tendered. There is also a $30 early tender premium.

Pricing on the second-lien deal is expected this week.

Antero dips post-pricing

Antero Resources’ $750 million of 5 5/8% notes due 2023 were weaker Wednesday.

The deal priced Tuesday and was upsized from $500 million.

A trader said the issue fell almost half a point to par 1/8.

J.P. Morgan Securities LLC, Wells Fargo Securities LLC, MUFG, Credit Agricole CIB and Capital One South Coast ran the books.

The notes feature a special call provision that makes the entire issue redeemable at 110 prior to June 1, 2016 upon a change of control.

The Denver-based oil and gas company plans to use the proceeds to repay bank debt.

Energy XXI holds call

Energy XXI, following the trend of new deals in the energy space, held a conference call Wednesday to discuss a proposed private placement offering of $1.25 billion senior secured second-lien notes due 2020.

The company first announced the issue on Tuesday, prompting Standard & Poor’s to drop the company’s ratings.

Moody’s Investors Service followed suit on Wednesday, with both citing concerns not only about the currently weak state of commodity prices, but also the company’s already-high leverage.

Investors seemed to agree with the agencies’ take, and the company’s existing debt has suffered as a result.

One trader pegged the 8¼% notes due 2018 at 72, a loss of over 2 points on the day.

However, he said the 9¼% notes due 2017 were unchanged at 72.

Another trader said the 8¼% notes were “pretty active,” deeming the issue down 2 to 3 points at 71 bid, 72 offered.

He said the 9¼% notes were “trading similar.”

In the 6 7/8% notes due 2024, the second trader said those fell to the high-40s from the mid-50s – “which makes sense, as they are layering a bunch of second-lien debt ahead of them now.”

The Houston-based oil and gas company plans to use proceeds to repay revolver borrowings.

Laredo planning deal

On the heels of Energy XXI’s new issue call, Laredo Petroleum announced it was planning a deal of its own.

The Tulsa, Okla.-based company is proposing a $350 million public sale of senior notes due 2023, the proceeds of which would be used to redeem all outstanding 9½% notes due 2019.

A part of the redemption would be funded with proceeds from a previously launched common stock offering.

Though most of the other energy names bringing new deals saw weakness in their existing paper, Laredo’s debt managed to hang in there.

A trader said the 9½% notes held steady at 105 3/8, though he said the 7 3/8% notes due 2022 were “down a shade” at 104¾.

The new deal is subject to market conditions and will be led by BofA Merrill Lynch, BMO Capital Markets, Goldman, Sachs & Co., Wells Fargo Securities LLC and Societe Generale.

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