Isle of Capri, Kosmos drive by; new Isles climbs; oil price surge again boosts energy names

By Paul A. Harris and Paul Deckelman

New York, April 7 – Drive-by add-ons to existing tranches of bonds were the dominant feature in Tuesday’s high-yield primary sphere, syndicate sources said.

They saw two such deals, totaling $375 million – though generating a total of $360 million in proceeds – having priced during the session.

Familiar Junkbondland gaming operator Isle of Capri Casinos, Inc. came to market with a $150 million addition to its existing 2021 notes, while Bermuda-based oil and natural gas exploration and production company Kosmos Energy Ltd. did a $225 million add-on to its own 2021 paper.

Isle of Capri’s deal is fungible with the company’s existing bonds upon registration, while Kosmos’ new issue will not be fungible with its outstanding bonds.

Traders said the Isle of Capri offering had moved up when it was freed for initial aftermarket dealings but did not see the new Kosmos Energy notes, which priced well below the existing bonds’ previous levels.

They also saw active dealings in Monday’s new issue from Endeavor Energy Resources LP. Those bonds had firmed smartly in initial aftermarket dealings after their pricing, and got modestly better on Tuesday as well.

Last week’s new deals from Hexion Inc. and Interval Leisure Group were also seen among the gainers in a generally upside market session.

World crude oil prices jumped for a second straight session, helping to push up energy names such as Transocean Inc. and Chesapeake Energy Corp. And helped by favorable financial media commentary about the coal company, Peabody Energy Corp.’s bonds did especially well.

Statistical indicators of market performance were meanwhile higher across the board for a second consecutive session on Tuesday.

Kosmos atop talk

Kosmos Energy priced a $225 million issue of 7 7/8% senior secured notes due Aug. 1, 2021 (existing ratings CCC+/B) at 92 to yield 9.59% on Tuesday, according to a syndicate source.

The reoffer price came on top of price talk.

The notes will have a structure mirroring that of the company's existing 7 7/8% notes due 2021 but represent a separate issue, not fungible with those existing notes.

Global coordinator Barclays will bill and deliver for the Rule 144A and Regulation S for life deal. BNP Paribas, BofA Merrill Lynch, Credit Agricole CIB, Credit Suisse Securities (USA) LLC, HSBC, SG CIB, Standard Bank and Standard Chartered were the joint bookrunners.

The oil and gas exploration and development company plans to use the proceeds to pay down its reserve-based facility and for general corporate purposes.

Kosmos Energy, which is based in Hamilton, Bermuda, and has an office in Dallas, operates in West Africa and on the Atlantic Margin.

Isle of Capri taps 5 7/8% notes

Isle of Capri Casinos priced a $150 million add-on to its 5 7/8% senior notes due March 15, 2021 (B2/BB-) at 102 to yield 5.302% on Tuesday, according to a syndicate source.

The reoffer price came at the rich end of price talk.

Wells Fargo Securities LLC was left bookrunner. Credit Suisse Securities (USA) and Deutsche Bank Securities Inc. were the joint bookrunners.

The St. Louis-based developer plans to use the proceeds to tender for and redeem its 7¾% senior notes due 2019.

Isle of Capri owns and operates branded gaming facilities and related lodging and entertainment facilities.

ExamWorks brings eight-year notes

ExamWorks Group, Inc. plans to price a $500 million offering of eight-year senior notes on Thursday following an investor roadshow, according to market sources.

BofA Merrill Lynch, SunTrust Robinson Humphrey, Wells Fargo Securities, Barclays, Deutsche Bank Securities, Fifth Third Securities and Goldman Sachs & Co. are the joint bookrunners for the public offer.

The notes come with three years of call protection.

The Atlanta-based company plans to use the proceeds to redeem all $250 million of its 9% senior notes due 2019, to repay its existing credit facility in full and for general corporate purposes, including acquisitions.

ExamWorks provides independent medical examinations, peer reviews, bill reviews, Medicare compliance, case management and related services.

Isle issue improves

In the secondary market, traders saw Isle of Capri’s 5 7/8% notes due 2021 having moved up after its add-on tranche priced at 102 to yield 5.302%.

One quoted the notes at 102 7/8 bid.

A second trader saw the bonds a little later on get as good as a 103-to-103½ bid context, while a third pegged them at 103½ – about where the existing bonds had been trading last week, before the new deal. He saw only “a couple of million” of the notes having changed hands initially on Tuesday.

There meantime was no initial aftermarket activity reported in the Kosmos Energy non-fungible add-on to its 7 7/8% senior secured notes due 2021, which priced at 92 to yield 9.59%.

The company’s established 2021 paper had most recently been seen last week, trading around the 94¼ bid area.

Endeavor moves up

A trader said that Monday’s drive-by offering from Endeavor Energy Resources traded as high as 102 bid, well up from their par pricing level, settling within a 101½-to-102 bid context.

Another trader saw the bonds going out around 102 bid, calling them up ¼ point on the day, on volume of over $15 million, putting the credit high up on the day’s Most Actives list.

After the Midland, Texas-based energy E&P company and its wholly owned EER Finance Inc. subsidiary had priced the $300 million issue, it had immediately opened above 101 bid later Monday, moving up to around a 101½-to-101¾ bid context by the end of that session.

Recent deals firmer

Among the issues which came to market last week, a trader saw Hexion’s 10% first-priority senior secured notes due 2020 up by 7/8 point on the session, seeing the bonds go out at 102 3/8 bid, 103 3/8 offered.

Another market source saw the notes moving between 102½ and 103 bid, though on only a handful of large-sized trades.

The Columbus, Ohio-based chemical company priced its $315 million offering last Thursday at par in a regularly scheduled forward-calendar transaction. They had initially traded around 100½ bid, 101 offered after pricing, and then moved up around 1 point from those levels in Monday’s dealings.

A trader saw Interval Leisure Group’s 5 5/8% notes due 2023 up ¼ point on Tuesday, at 101¼ bid, though on light volume.

The Miami-based provider of travel and leisure-related products priced $350 million of the notes at par on Thursday off the forward calendar via its wholly owned Interval Leisure Acquisition Corp. subsidiary, after upsizing the offering from $300 million. They initially firmed about ½ point and then tacked on another ½ point on Monday to finish at 101 bid.

Going back a little, AES Corp.’s 5½% notes due 2025 were seen about ½ point higher on the day, at 99¼ bid, on robust volume of more than $14 million.

The Arlington, Va.-based domestic and global power producer had priced $575 million of those notes in a quickly shopped offering last Tuesday. They came to market at 99 to yield 5.631%. The notes had initially traded around their 99 issue price, though softening a little later in the week to the high 98 range.

Going back still further, a trader saw Schaeffler AG’s 4¾% notes due 2023 jump by some 1 5/8 points on the day, to end at 103 1/8 bid, 103½ offered, well up from Monday’s close at 101½ bid, 102¼ offered.

The German ball-bearing manufacturer’s wholly owned Schaeffler Finance BV unit had priced $600 million of those notes at par on March 27 in a scheduled three-part forward calendar deal that also included euro-denominated tranches of five- and 10-year notes.

The dollar bonds initially traded around their par issue price but had firmed to around a 101-to-101½ bid context by the middle of last week, where they stayed until Tuesday’s rally.

Oil prices drive energy upturn

Away from the new deals, traders noted firmness in the energy sector, helped by a second straight session of surging crude oil prices.

U.S. benchmark-grade West Texas Intermediate for May delivery shot up by $1.62 per barrel, or 3.11%, to close at $53.76. The advance followed Monday’s 5.72% jump on the New York Mercantile Exchange.

European benchmark-grade Brent crude pushed up by 90 cents per barrel, or 1.55%, to $59.02, after having zoomed by 5.3% on Monday.

Energy credits riding the crest of that momentum included Oklahoma City-based oil and gas operator Chesapeake Energy, whose 4 7/8% notes due 2022 gained ¾ point to end at 94½ bid on volume of more than $16 million.

Its 5¾% notes due 2023 were up 1¼ point, at 99½ bid, with over $15 million traded.

Houston-based Linn Energy LLC’s 7¾% notes due 2021 were up a deuce on the day, at 82½ bid.

There was also considerable upside activity in Swiss offshore oil drilling contractor Transocean’s paper. Its 6 3/8% notes due 2021 gained more than 1¾ point to end at 86 13/16 bid, with more than $26 million traded, while its 6.8% long bonds due 2038 were up by 1 3/8 points, at just under 75 bid, with over $15 million having changed hands.

Peabody pops on TV talk

Also in the energy area, comments made by a hedge fund player on CNBC helped push Peabody Energy’s bonds upward on Tuesday, according to a trader.

He saw the St. Louis-based coal producer’s 10% notes due 2022 – a $1 billion issue that priced in early March – at 89 bid, 90 offered, up 4 points on the day. He also saw its 6¼% notes due 2021 at 61½, which compared to a 57 to 58 zip code previously.

A second trader estimated the 10% notes to be up 3 points on the day at 89, on heavy volume of more than $29 million, tops in the junk precincts.

Another market source pegged the 6½% notes due 2020 at 63 bid, up 3½ points.

In an interview with CNBC, Christian Zann, a partner and portfolio manager at Balyasny Asset Management, deemed Peabody a value play, which in turn helped move the company’s New York Stock Exchange-traded shares up 29 cents, or 5.74%, to $5.34.

Indicators extend gains

Statistical indicators of junk market performance continued their recently robust trend on Tuesday, rising across the board versus where they had finished out the previous session for a second straight day and for the sixth time in the last seven sessions

The KDP High Yield Daily index jumped by 16 basis points to close at 71.51, its sixth straight advance and its 11th in the last 12 sessions. On Monday, it had moved up by 5 bps.

Its yield came in by 6 bps on Tuesday to end at 5.34%, its third consecutive decline. On Monday, it had gone down by 4 bps.

The Markit Series 24 CDX North American High Yield index posted its second straight advance, finishing up by 3/16 point at 107 11/16 bid, 107 ¾ offered. It had risen by 9/32 point on Monday, after having been little changed over the previous two sessions.

The Merrill Lynch U.S. High Yield Master II index posted its seventh straight gain on Tuesday, improving by 0.268%, on top of a 0.21% rise on Tuesday.

Tuesday’s rise was its 12th in the last 13 sessions.

The latest gain lifted its year-to-date return to 3.117% from 2.841% on Monday, although it remained just slightly below its peak 2015 level of 3.125%, which was reached on March 2. Tuesday marked the first time the cumulative return had ended above the psychologically significant 3% mark since March 3, when it had closed at 3.016%.

Stephanie N. Rotondo contributed to this review.

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