Extraction O&G, Midcontinent add-on price; new Extraction improves; Lithia holds gains; Rite Aid rises

By Paul Deckelman and Paul A. Harris

New York, July 18 – The high-yield primary sphere remained busy on Tuesday, as a pair of issues totaling $525 million priced.

Energy operator Extraction Oil & Gas, Inc. priced an upsized $400 million of seven-year notes, while cable system company Midcontinent Communications did an upsized $125 million add-on to its existing 2023 notes.

When the new Extraction notes were freed to trade, they were seen having firmed more than 1 point on the day.

Traders meantime saw Monday’s new issue from car retailer Lithia Motors, Inc., and last Friday’s big two-part offering from K. Hovnanian Enterprises, Inc. continue to trade at or near the high levels that both issues had hit when they went into the aftermarket.

Away from the new deals, Rite Aid Corp.’s notes moved higher in very busy trading, after the drugstore chain operator issued pro forma financial performance data it expects to achieve upon the completion of its recently announced sale of nearly half of its more than 4,600 stores to larger industry rival Walgreens Boots Alliance Inc.

Statistical market performance measures turned mixed on Tuesday, though just barely so, after having been higher across the board for four straight sessions before that.

Extraction upsized and tight

Two drive-by issuers priced upsized single-tranche dollar deals during the Tuesday primary market session.

Both came at the tight or rich ends of talk.

Extraction Oil & Gas, Inc. priced an upsized $400 million issue of seven-year senior notes (B3/B/BB) at par to yield 7 3/8%.

The issue size was increased from $350 million.

The yield printed at the tight end of yield talk in the 7½% area.

Shortly after it was announced Tuesday morning the buzz in the market held that the Extraction deal was already a blowout, with a significant reverse inquiry factor at play, a trader said.

However at the end of the day, with the freshly printed Extraction Oil 7 3/8% notes trading at par ½ on the break, an investor questioned just how much of a blowout the deal could have been.

Barclays was the lead left bookrunner. Goldman Sachs and Jefferies were the joint bookrunners.

The Denver-based oil and gas producer plans to use the proceeds to partially fund 2017 capital expenditures and for general corporate purposes.

Midcontinent upsized and tight

Also in Tuesday drive-by action, Midcontinent Communications priced an upsized $125 million add-on to their 6 7/8% senior notes due Aug. 15, 2023 (B3/B) at 107.375 to yield 4.486%.

The issue size was increased from $100 million.

The reoffer price came at the rich end of price talk in the 107.25 area.

SunTrust was the left bookrunner. Wells Fargo and RBC were the joint bookrunners.

The Sioux Falls, S.D.-based regional cable operator plans to use the proceeds, along with its upsized revolver and its incremental term loan, to refinance its 6¼% notes due 2021. The additional proceeds resulting from the $25 million upsizing of the deal will be used to pay down revolver debt.

Meanwhile commitments were due Tuesday on the Parexel International Corp. $720 million one-year senior unsecured bridge, according to an investor who said that the bridge, itself, was a blowout, replete with lousy allocations (on the bridge!).

Demand for certain deals remains intense, the source said, adding that there is was already $1.5 billion of orders in the books for the Plumb Buyer, LLC/HD Supply Waterworks $475 million offering of eight-year senior notes (Caa1/B-), expected to price on Thursday.

Demand has been grinding price talk lower, with current chatter in the low-to-mid 6% area, down from 6¾% to 7%, sources say.

And accounts are being warned that allocations will be dire, even for those that played the bridge.

BofA Merrill Lynch is leading the offer.

It has been a real summer in the primary market, with a slow march of big, high-profile deals interspersed with a steady flow of off-the-run offers.

That could change next week, the investor said, adding that the buzz in the market holds that 10 deals will be launched during the July 24 week, and Goldman Sachs will have at least a hand in all of them.

Unrated Eurofins comes at 170 bps

During a relatively quiet session in the European primary market (quiet when compared to the steady July-to-date volume: €5.9 billion in 14 tranches and £645 million in two tranches) Eurofins Scientific priced an upsized €650 million issue of unrated 2 1/8% seven-year senior notes at a 170 basis points spread to mid-swaps.

The issue size was increased from €500 million.

The spread priced through the tight end of the 175 to 180 bps spread talk.

The final book size was €2.7 billion, a source said.

Global coordinator BofA Merrill Lynch will bill and deliver. BNP Paribas was also a global coordinator.

Credit Agricole, Natixis and UniCredit were the joint bookrunners.

Monday inflows

The daily cash flows of the dedicated high-yield bond funds was positive on Monday, the most recent session for which data was available at press time, the investor said.

High-yield ETFs saw $408 million of inflows on the day.

Asset managers saw $20 million of inflows on Monday.

Dedicated bank loan funds, however, sustained a conspicuous $205 million of outflows on Monday, the investor said.

New Extraction Oil up

In the secondary realm, a trader saw Extraction Oil & Gas’s new 7 3/8% notes due 2024 trading in a bid context of 101 to 101¼.

Those quickly shopped notes had priced at par earlier in the session.

Lithia gains continue

Lithia Motors’ new 5¼% notes due 2025, which had priced on Monday, were seen continuing to post strong gains on Tuesday, in busy dealings.

A market source said that over $21 million had changed hands, putting the credit high up on the day’s Most Actives list.

He pegged the bonds at 101 7/8 bid, calling them up 1/8 point on the day.

A second trader saw the notes ¼ point higher, at 101¾, while at another desk, they were being quoted at 101¾ bid, 102 offered.

Lithia, a Medford, Ore.-based automotive retailer, had priced $300 million of the notes at par in a regularly scheduled forward calendar offering.

After that pricing, the new bonds had firmed to a 101-to-101¼ bid context, with volume of over $40 million putting the credit right at the top of the Most Actives list.

Hovnanian notes advance again

Friday’s new issue from Hovnanian Enterprises was meantime seen continuing to firm on Tuesday from the already strong gains which that two-part issue had notched in initial aftermarket activity and then added to in trading on Monday.

A trader saw its 10% senior secured notes due 2022 move up to 103 3/8 bid, up 3/8 point on the day, on volume of around $10-million – down from the more than $35 million that had traded on Friday and the over $20 million which had changed hands on Monday.

A second trader also saw those bonds at 103 7/8, calling them ¼ point higher.

At another desk, a trader said that the notes “were around the same level as [Monday], at 103¾ bid.

He said that compared to the volume levels for both tranches of the two part issue on Friday and again on Monday, “it wasn’t trading that much – maybe $10 million of the one and just $3million of the other.”

That latter reference would be the 10½% senior secured notes due 2024, which he saw having moved up to a 104¼-to-105 bid context.

Another trader saw the10½’s get as good as 105 bid, 105¾ offered.

Hovnanian, a Red Bank, N.J-based homebuilder, priced both halves of its $840 million regularly scheduled forward calendar offering at par on Friday – $440 million of the 10% five-year notes and $400 million of the 10½% seven-year notes.

Those notes had stormed higher right from the get-go, with the 10% piece of paper seen having traded up to a 102-to-102½ bid context, with over $35 million having traded on Friday.

The 10½% notes had done even better in their initial aftermarket activity, moving up to a 103-to-103½ bid range, on turnover of more than $35 million.

On Monday, more than $29 million of the 10% notes changed hands, pushing the bonds up to a 103½-to-103 7/8 bid context, while the 10½% notes were last seen in a 104¾-to-105 bid range, on volume of more than $24 million, a trader said.

Rite Aid on the rise

Away from the new deals, Rite Aid’s bonds were seen better, firming after the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator released pro forma financial expectations resulting from its pending sale of 2,186 of its stores to Walgreens for $5.175 billion in cash.

Rite Aid’s 6 1/8% notes due 2023 was “easily the busiest” bond of the day in Junkbondland, a market source said, seeing over $102 million trading around at 99 3/8 bid, up 1 full point on the day.

Its 6¾% notes due 2021 gained 3/8 points to go home at 103 7/8 bid, on volume of over $28 million.

Rite Aid projects spending some $4.92 billion of the anticipated net proceeds from the store sale for repayment of most of its more than $7 billion of net debt, dropping its leverage ratio of 6.8 times EBITDA down to the low 3 times range.

Indicators turn mixed

Statistical market performance measures turned mixed on Tuesday, though just barely so, after having been higher across the board for four straight sessions before that.

The KDP High Yield Daily Index jumped by 13 basis points on Tuesday, ending at 72.38, it fifth consecutive gain. It had also moved up by 8 bps on Monday.

Its yield came in by 4 bps, closing at 5.04%, after having widened out by 6 bps on Monday – an unusual move with the index reading up, since the yield generally, although not exclusively, moves inversely to the index reading, usually falling when the index reading rises and rising when the index reading falls. Before that, the yield had fallen over three straight sessions.

The Markit CDX Series 28 High Yield Index eased marginally on Tuesday to end at 107 17/32 bid, 107 9/16 offered. That was its first downturn, however small, after four straight upside sessions before that, including Monday, when the index had finished up 1/8 point.

And the Merrill Lynch North American High Yield Index saw its seventh straight gain on Tuesday, firming by 0.116%, on top of Monday’s 0.218% upturn. Those seventh consecutive better sessions follow three sessions before that on the downside.

Tuesday’s advance lifted the index’s year-to-date return to 5.607%, establishing a third consecutive new year-to-date peak level by topping the old mark of 5.484%, which had been set on Monday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.