Tesoro Logistics, Transocean, Steel Dynamics price deals, new bonds firm; energy off

By Paul Deckelman and Paul A. Harris

New York, Nov. 29 – Activity picked up in the high-yield primary market on Tuesday as a trio of issuers each priced a quickly shopped single-tranche deal, collectively totaling $1.78 billion.

That was well up from the $125 million which had come to market on Monday.

Midstream energy services company Tesoro Logistics LP kicked things off with a $750 million offering of eight-year notes.

Offshore energy drilling contractor Transocean Ltd. did an upsized $625 million of eight-year secured notes.

Metals producer and recycler Steel Dynamics, Inc. brought a $400 million issue of 10-year notes to market late in the session.

Traders later saw each of the new deals a little firmer than their respective issue prices, with brisk activity in the Tesoro Logistics and Steel Dynamics bonds.

Alcoholic beverages company Constellation Brands, Inc. also tapped the capital markets on Tuesday pricing an upsized $600 million split-rated 10-year deal which played to investment-grade accounts as well as to junk investors.

Its existing bonds were seen firmer across the capital structure in busy dealings.

Oil and natural gas issues such as California Resources Corp. and EP Energy LLC were seen lower, in line with a sharp fall in crude oil prices head of Wednesday’s OPEC ministers’ meeting, on market worries that a much hoped-for deal to stabilize prices by curbing output could be in jeopardy as major producers disagree on production cuts.

Statistical market performance measures turned lower across the board on Tuesday, after having been mixed on Monday and higher all around on Friday. It was their second weaker session in the last eight trading days, a stretch that included three consecutive gains at one point.

Tesoro Logistics prices tight

The primary market had the appearance of a well-oiled machine on Tuesday as a trio of issuers took away a total of $1.77 billion.

Each issuer brought a single tranche.

One of the three was upsized.

Tight pricings were the rule as the market retains its appetite for familiar issuers, a trader remarked.

Tesoro Logistics and Tesoro Logistics Finance Corp. priced a $750 million issue of eight-year senior notes (Ba3/BB+) at par to yield 5¼%.

The yield printed at the tight end of the 5¼% to 5½% yield talk and inside of the 5½% area initial guidance.

The deal was heard to be more than two times oversubscribed, the trader said.

RBC was the lead left bookrunner. BNP Paribas, BofA Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, PNC and TD were the joint bookrunners.

The San Antonio-based provider of midstream services plans to use the proceeds to repay borrowings under its dropdown credit facility and for general partnership purposes including acquisitions.

Transocean upsizes

Transocean priced an upsized $625 million issue of 6¼% eight-year senior secured notes at 98.5 to yield 6½% on Tuesday, according to a market source.

The issue, priced via Transocean Proteus Ltd., was increased from $600 million.

The yield printed 12.5 basis points beneath the tight end of yield talk set in the 6¾% area.

Piper Jaffrey ran the books.

The proceeds will be used primarily to partially finance the construction of the Deepwater Proteus.

Steel Dynamics drives by

Steel Dynamics priced a $400 million issue of 10-year senior notes (Ba2/BB+) at par to yield 5%.

The yield printed at the tight end of the 5% to 5 1/8% yield talk. Initial guidance was in the low 5% area.

The order book was heard to be about two times oversubscribed, a trade said.

BofA Merrill Lynch, JP Morgan, Morgan Stanley and Goldman Sachs were the bookrunners for the debt refinancing deal.

Monday inflows

Cash flows for dedicated high-yield funds were positive on Monday, the most recent session for which data was available at press time, a portfolio manager said.

High-yield ETFs saw $296 million of inflows on the day.

Asset managers saw $25 million of inflows on Monday.

Bank loans also saw positive cash flows on Monday, gaining $80 million of inflows.

New deals trade actively

In the secondary market, there was active interest in the day’s new issues, particularly Steel Dynamics and Tesoro Logistics.

The latter company’s new 5¼% notes due 2025 were easily the most actively traded credit in Junkbondland on Tuesday, with over $80 million having changed hands by the close.

A trader pegged the new deal in a 100½ to 101 bid context while a second market source saw the bonds going home at 100 7/8 bid, up from their par issue level.

A trader said that Fort Wayne, Ind.-based steelmaker and metals recycler Steel Dynamics’ 5% notes due 2026 gained more than a point when they hit the aftermarket, finishing the day at 101¼ bid, up from their par issue price, on turnover of more than $17 million.

Activity was more restrained in the new Transocean Proteus 6¼% senior secured notes.

But that paper did move up to a 99¼ to 99¾ bid range after pricing at 98.5.

The undersea energy drilling company’s existing 9% notes due 2023 were seen unchanged on the day at 100¼ bid, on volume of more than $11 million.

Constellation busy after deal

Constellation Brands’ new split-rated (Ba1/BBB-/BBB-) offering of 3.7% notes due 2026 firmed slightly in aftermarket dealings of more than $14 million, moving up to around 100 1/16 bid from its 99.909 issue price.

A trader meantime said that the Victor, N.Y.-based wine, beer and whiskey maker and importer’s existing paper “was fairly active across their [capital] structure, calling those issues up about ½ to ¾ points, although he added that “it’s a crossover name that may be trading off the IG desks too.”

A market source saw Constellation’s 6% notes due 2022 better by ¾ point on the day at 114¼ bid, high up on the Most Actives list with over $25 million traded.

Its 4¾% notes due 2024 gained 5/8 point to end at 107 5/8 bid on over $20 million of volume.

Recent issues mixed

Among the junk market’s more recently priced issues, Bombardier, Inc.’s 8¾% notes due 2021 were trading at 99 bid, unchanged on the day, a trader said, with over $19 million moving around.

Bombardier priced $1.4 billion of those notes at 99.001 to yield 9% in a regularly scheduled forward calendar offering on Nov. 16 but the bonds continually struggled after that to stay even at that discounted issue price.

The trader also saw Hilton Grand Vacations Borrower LLC’s 6 1/8% notes due 2024 up ½ point at 102½ bid, 103 offered.

The Orlando, Fla.-based vacation timeshares company – being spun off from worldwide hospitality giant Hilton – priced $300 million of the notes at par off the forward calendar on Nov. 18 and they have traded well up from that issue price since then.

EP Energy’s 8% senior secured notes due 2024 were off by 3/8 point at 101½ bid, 102 offered.

The Houston-based oil and natural gas exploration and production company’s $500 million scheduled forward calendar deal was priced at par on Nov. 17 after upsizing from an originally announced $350 million.

Energy names falter

A trader at another desk meantime said that those EP Energy 8% notes “didn’t really trade much today’ – but he did see the company’s existing 9 3/8% notes due 2020 down 1¼ points on the session at 79 bid, in line with a general retreat by energy issues ahead of Wednesday’s OPEC meeting in Vienna, amid market worries the ministers assembled there will not be able to agree upon hoped-for output curbs to prop up crude oil prices.

He said “the oil sector was generically lower by about 1 point,” including California Resources’ 8% notes due 2024, down 1 point to 72¼ bid.

The benchmark U.S. crude oil grade, West Texas Intermediate for January delivery, plunged by $1.85 per barrel to $45.23 in Tuesday trading on the New York Mercantile Exchange, a sharp reversal from Monday, when that contract had shot up by $1.02 per barrel.

The expiring January contract for the key European grade, Brent crude, fell by $1.86 per barrel Tuesday on the London ICE Futures Market, settling at $46.38, in contrast to its $1 per barrel rise on Monday.

Indicators turn lower

Statistical market performance measures turned lower across the board on Tuesday, after being mixed on Monday and higher all around on Friday. It was their second weaker session in the last eight trading days, a stretch that included three consecutive gains at one point.

The KDP High Yield Index eased by 1 basis point to finish Tuesday at 70.19; on Monday, it had firmed by 5 bps, its fifth consecutive gain.

For a second straight day, the index’s yield came in by 1 bp to end at 5.82%, its third straight narrowing overall, including Friday’s 2 bps decline.

The Markit Series 27 CDX Index retreated by 1/16 point on Tuesday, closing at 104 17/32 bid, 104 9/16 offered, its second successive loss. It had finished Monday down 1/32 point after having risen by 5/32 point on Friday.

And the Merrill Lynch High Yield Index finally weakened on Tuesday after having notched six straight gains, backtracking by 0.058%, versus Monday’s 0.141% advance.

Tuesday’s setback cut its year-to-date return to 15.043% from Monday’s 15.109%.

Those levels remain well under its peak cumulative return for the year so far of 16.768%, set on Oct. 25.

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