Energy XXI, Peabody, RSI price deals; Fortescue ‘extremely active’; funds gain $309 million

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., March 5 – Three issuers came to the high-yield primary market with a single tranche each on Thursday for a combined $2.95 billion of proceeds.

Two of the deals were greater than $1 billion in size and priced at a discount to par.

Energy XXI Gulf Coast, Inc. upsized its 11% five-year senior secured second-lien notes to $1.45 billion. The notes priced to yield 12%.

Peabody Energy Corp. brought $1 billion of 10% seven-year senior secured second-lien notes to yield 10½%.

Finally, RSI Home Products, Inc. priced a $575 million issue of eight-year second-lien senior secured notes to yield 6½%.

The secondary high-yield bond market remained focused on names that were bringing new deals in Thursday trading.

However, as a snowstorm hit New York and most of the Northeast, a trader said that afternoon trading was “muted.”

“It’s pretty snowy here,” he said.

But in secondary dealings, Peabody Energy’s and Energy XXI’s older bonds were getting a boost.

Fortescue Metals Group was also trending toward the positive side after the iron producer announced a tender offer for three series of notes.

But despite the gains in those names and in recently priced deals, the market as a whole was seen ending with a mixed tone.

Energy XXI Gulf Coast

In the primary market, Energy XXI Gulf Coast priced an upsized $1.45 billion issue of 11% five-year senior secured second-lien notes (B2/B+) at 96.313 to yield 12%.

The deal was upsized from $1.25 billion.

The coupon and yield came on top of talk.

Credit Suisse, Deutsche Bank, Wells Fargo, Imperial, UBS, Citigroup, RBS and Jefferies were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Peabody prices $1 billion

Peabody Energy priced a $1 billion issue of 10% seven-year senior secured second-lien notes (B2/BB+/BB-) at 97.566 to yield 10½%.

The coupon and yield came on top of talk, while the reoffer price came in line with discount talk of approximately 2.5 points.

BofA Merrill Lynch and Morgan Stanley were the joint physical bookrunners.

BNP, Citigroup, Credit Agricole, Credit Suisse, HSBC, JPMorgan and PNC were the joint bookrunners.

The St. Louis-based coal company plans to use the proceeds to fund the tender for its 7 3/8% senior notes due 2016 and for general corporate purposes.

RSI Home Products

RSI Home Products priced a $575 million issue of eight-year second-lien senior secured notes (B1/B+) at par to yield 6½%.

The yield printed at the wide end of the 6¼% to 6½% yield talk. There were also covenant changes.

BofA Merrill Lynch was the left bookrunner. Barclays was the joint bookrunner.

Proceeds will be used to fund the tender offer for the company’s 6 7/8% senior secured second-lien notes due 2018, an offer that expires on March 28.

Capital Products Partners

Athens-based tanker company Capital Product Partners LP talked its $260 million offering of seven-year first-priority ship mortgage notes (B2/BB-) to price at a discount and yield 8% to 8¼%.

Deutsche Bank, Goldman Sachs and Wells Fargo were the joint bookrunners.

Proceeds will be used to repay bank debt.

Funds see $309 million inflows

Dedicated high-yield funds saw $309 million of inflows for the week to Wednesday's close, according to a market source who cited a weekly report from Lipper-AMG.

It's the sixth consecutive weekly inflow to the funds, according to a Prospect News analysis of the data.

It follows the previous week's $1.09 billion inflow.

Inflows over the last six weeks total $11.41 billion.

This week's inflow is seventh positive flow of 2015, versus two outflows.

Year-to-date net inflow now total $11.12 billion, up from $10.81 billion recorded last week.

Market mixed

Market indicators were mixed Thursday.

The KDP High Yield index fell to 71.79 with a 5.18% yield, compared with Wednesday’s reading of 71.83 with a 5.16% yield.

But the CDX North American High Yield Series 23 index improved just over a tenth of a point to 107.54 bid, 107.62 offered, according to a market source.

Meanwhile, recent deals edged higher during the session.

From Wednesday business, Comstock Resources Inc.’s $700 million of 10% notes due 2020 gained a quarter-point, closing at par 3/8, according to a trader.

The trader also saw Laredo Petroleum Inc.’s $350 million of 6¼% notes due 2023 at 101¼, half a point higher on the day.

Peabody gains

Peabody Energy’s $1 billion offering was said to be “doing a little better,” a trader said ahead of pricing on Thursday.

As such, the company’s existing debt was getting a little boost.

The trader said the 7 3/8% notes due 2016, which will be taken out with proceeds from the new deal, rose 2 points to 109¾. The 6½% notes due 2020 were up similarly, trading at 80¼.

The trader also saw the 6% notes due 2018 gaining over a point to 88½, though the 6¼% notes due 2021 fell a quarter-point to 76.

Another market source pegged the 6½% notes at 80 bid, up a deuce.

Peabody is a St. Louis-based coal producer.

Energy XXI rises

As with Peabody, Energy XXI’s debt was lifted ahead of pricing on the new issue.

A trader saw Energy XXI Ltd.’s 8¼% notes due 2018 putting on nearly 2 points, ending around 72¾. The 7½% notes due 2021 issued by Energy XXI Gulf Coast, however, drifted down over half a point to 49 3/8, he said.

In addition to increasing the size of the deal, call protection on the new issue was increased to two-and-a-half years from two years.

The Houston-based oil and gas company is using proceeds to pay down its revolving credit facility.

Fortescue active on refi

Fortescue Metals Group’s debt was “extremely active” after the company announced a tender offer, according to a trader.

The trader also noted that while the bonds were better on the news, they ended off their intra-day highs.

The trader said the 8¼% notes due 2019 rallied to a high of 99 but settled back in to 97. The 6 7/8% notes due 2022 popped up to 84, coming back in to 83.

Another trader saw the 8¼% notes at 96 7/8, which he said was down over half a point on the day. He meantime pegged the 6 7/8% notes of 2022 at 84½.

In the 6% notes due 2017, the trader said the issue came in a point to 102 1/8, as the 6 7/8% notes due 2018 gained almost 2 points to 103¾.

A third source saw the 2017 paper at 103¼ bid, up a point.

The Australian iron ore mining company is looking to exchange the 2017, 2018 and 2019 paper for cash. The 2019 issue will only be partially tendered.

Hercules downgraded

Hercules Offshore Inc. was quoted weaker on Thursday as Moody’s Investors Service downgraded the company to Caa2 from B2.

A trader said the 7½% notes due 2021 were offered at 29½, while the 8¾% notes due the same year were offered at 30.

The 10¼% notes due 2019 were pegged at 31½ bid, 33½ offered.

Moody’s attributed its rating change in part to concerns about the company’s declining earnings power, especially after it recently lost one of its drilling contracts with Saudi Aramco. The agency added that the company’s liquidity may not be able to withstand the current market rates for oil and that it might have to consider a distressed debt exchange in order to deal with its debt burden.

Such a move by the Houston-based offshore drilling company would be considered a default.

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