Upsized NGL prices, trades around issue; new Aecom bonds active; funds gain $158 million

By Paul Deckelman and Paul A. Harris

New York, Feb. 16 – The high-yield primary market saw just one new deal pricing on Thursday – an upsized $500 million offering of eight-year notes from NGL Energy Partners LP.

That was down from the $1.26 billion which had gotten done in two tranches during Wednesday’s session, according to syndicate sources.

Traders saw busy aftermarket dealings in the new NGL notes, which firmed modestly from their issue price.

They meantime said that Wednesday’s quick-to-market megadeal from engineering company Aecom was the most active issue of the day in Junkbondland, also trading a little above its issue price.

Wednesday’s other new deal, from Canadian gaming operator Gateway Casinos & Entertainment Ltd., was only a little changed on the day but held onto the handsome aftermarket gains it had racked up when that forward calendar deal began trading after its pricing. Thursday’s volume in the issue was well under Wednesday’s.

New-deal activity is expected to be muted on Friday heading into the Presidents Day holiday break, which will see junk and other fixed-income markets in the United States closed on Monday.

Away from the new-deal world, Hornbeck Offshore Services Inc.’s bonds fell in active trading after the underwater energy drilling company reported disappointing quarterly results and warned that it anticipates liquidity problems once it gets past next year.

Statistical market performance measures were mixed for a second consecutive session on Thursday. They had turned mixed – though just barely so – on Wednesday, after posting gains over the previous four sessions and in seven out of the prior 10 trading days.

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – were in positive territory for a third consecutive week after two outflows as $158 million more came into those weekly reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday (see related story elsewhere in this issue).

NGL Energy upsizes

NGL Energy Partners priced Thursday’s sole deal, an upsized $500 million issue of eight-year senior notes (B2/BB-/B+) that came at par to yield 6 1/8%.

The issue size was increased from $450 million.

The yield printed in the middle of the 6% to 6¼% yield talk. Early guidance was in the low 6% area.

The deal was wrapped around par in the secondary market, according to an investor who passed on NGL’s new notes.

Joint active bookrunner RBC will bill and deliver for the debt refinancing deal. Deutsche Bank and TD were also joint active bookrunners.

Cash awaiting a calendar

High-yield investors are believed to have cash and are awaiting a calendar, market sources say.

However Thursday’s NGL deal cleared the active forward calendar.

The CenturyLink $2.15 billion senior secured bridge loan has been undergoing syndication via Morgan Stanley, according to an investor.

But the bond deal that is expected to follow might not materialize before the end of February, the investor said.

Another high-yield investor said that there are more than a few energy companies that want to come to market and will if there is some spread tightening in the sector.

But the near and intermediate terms may be slow periods in terms of new deal supply, sources say.

Right now some prospective issuers are emerging from earnings blackouts.

However the week ahead, shortened because of the Presidents Day holiday on Monday in the United States, is also a school break week in New York and Boston. Hence a lot of players plan to take vacations during the post-Presidents Day week.

And the week after that, the week beginning Feb. 27, will be set aside by numerous market participants who will be attending the JP Morgan Global High Yield & Leveraged Finance Conference, scheduled to take place from Feb. 27 through March 1 in Miami, sources say.

Mixed Wednesday flows

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

High-yield ETFs saw $71 million of aggregate outflows. The breakdown had short-dated funds undergoing $141 million of outflows on the day while other high-yield ETFs saw $70 million of inflows on Wednesday.

Actively managed funds saw $30 million of inflows on Wednesday.

Year-to-date flows paint a picture that stands in vivid contrast to fund flows to mid-February 2016, the investor said.

High-yield bond funds have seen $70 million of net inflows, year-to-date, compared to $5.4 billion of net outflows on the year to mid-February 2016.

For the dedicated bank loan funds the contrast is even more eye-popping. Thus far in 2017 the loan funds have seen a whopping $6.6 billion of net inflows, compared to $3.6 billion of outflows during the year to mid-February 2016, the investor said.

New NGL issue firms

In the secondary arena, traders saw the new 6 1/8% notes from Tulsa, Okla.-based vertically integrated energy limited partnership company NGL moving modestly higher after that upsized forward calendar deal had priced at par.

One market source initially pegged the new notes in a 99½ to 100¾ bid context.

A little later on, a trader at another shop saw them between 100¼ and 100½ bid.

And a third had them going home a little below that, at 100 3/16 bid, on volume of more than $13 million.

Aecom bonds trade busily

Wednesday’s new deal from Los Angeles-based engineering company Aecom was easily the most actively traded junk issue of the day, a trader said, with over $82 million of those 5 1/8% notes due 2027 changing hands by the close.

“ACM traded like crazy,” he exclaimed, referring to the issuer’s ticker symbol. “Like they were having an orgy.”

He saw the notes moving between 100¼ and 100¾ bid during the session, before narrowing in to around 100 3/8 to 100 5/8 by the end of the day.

At another desk, the bonds were seen finishing around 100 7/16 bid, which a market source called down 1/8 point on the day.

The company had priced $1 billion of the notes at par on Wednesday after upsizing the quick-to-market deal from an originally announced $750 million.

The notes firmed to around 100½ bid in initial aftermarket dealings of over $20 million.

Gateway holds gains

Wednesday’s other issue – Burnaby, B.C.-based gaming company Gateway Casinos & Entertainment’s 8¼% second-priority senior secured notes due 2024 – was little changed on the day Thursday, trading at or above the 102 area where it had traded in initial aftermarket dealings after pricing at par.

A trader saw the notes in a 101¾ to 102 11/32 bid context during the day, though he saw the last prints between 102 and 102¼.

Several other traders separately quoted the new notes at 102¼ bid.

But while that $255 million regularly scheduled forward calendar issue had been the day’s busiest credit following its pricing on Wednesday, with more than $63 million traded, one of the market sources said Thursday’s volume was “tiny, tiny” by comparison, with around $15 million of turnover.

Avolon action

Among other recently priced new deals, a market source said that Avolon Holdings Ltd.’s 5¼% notes due August 2022 gained 1/8 point on the day, closing at 102 5/8 bid on volume of more than $13 million.

The Dublin and Hong Kong-based commercial aircraft leasing company’s $3 billion two-part forward calendar offering, including $1.75 billion of those 5.5-year notes as well as $1.25 billion of 5½% notes due 2024, had priced at par back on Jan. 20. Both tranches had moved above the 102 bid level in initial aftermarket trading and stayed up there subsequently.

Hornbeck gets hit

Away from the new issues, traders said that Thursday was a rough day for Hornbeck Offshore Services’ bonds after the Covington, La.-based offshore drilling contractor reported poor fourth-quarter numbers and warned of possible liquidity problems ahead.

A trader saw its 5% notes due 2021 drop to 68¾ bid from prior round-lot levels earlier in the week around 72¼ bid. More than $28 million of the issue traded, landing it high on the day’s Most Actives list.

It’s 5 7/8% notes due 2020 “dropped by 2 or 3 points,” a trader said, while a second trader called that a 4 point slide on volume of over $22 million.

Hornbeck’s bonds, as well as its New York Stock Exchange-traded shares (down more than 26% on the day on over eight times their normal volume), swooned after the company reported poor 2016 fourth-quarter numbers. Its diluted per-share loss widened sequentially by 18% to 53 cents from 45 cents in the third quarter and its net loss widened to $19.2 million from $16.5 million.

EBITDA was $1.1 million, a decrease of $14.1 million, or 93%, from third quarter EBITDA of $15.2 million.

While Hornbeck said that it had sufficient liquidity to carry it through next year, it warned that: “The company does not currently expect to have sufficient liquidity to repay its three tranches of funded unsecured debt outstanding that mature in fiscal years 2019, 2020 and 2021, respectively, as they come due, absent a refinancing or restructuring of such debt.

“Refinancing in the current climate is not likely to be achievable on terms that are in-line with the company’s historic cost of debt capital. The company remains fully cognizant of the challenges currently facing the offshore oil and gas industry and continues to review its capital structure and assess its strategic options.”

Indicators stay mixed

Statistical market performance measures were mixed for a second consecutive session on Thursday. They had turned mixed – though just barely so – on Wednesday, after having posted gains over the previous four consecutive sessions and in seven out of the prior 10 trading days.

The KDP High Yield Index notched its sixth straight gain on Thursday, rising by 5 basis points to end at 72.35, its 11th such upturn in the last 12 sessions. On Wednesday, it had risen by 2 bps.

Its yield came in by 1 bp on Thursday to 5.06% after being unchanged on Wednesday.

However, the Markit CDX Series 27 High Yield Index was on the downside for a second session in a row, losing 7/32 point to close at 107 15/32 bid, 107½ offered. On Wednesday, it had edged downward for the first time after four consecutive gains and seven upturns in the previous 10 sessions.

The Merrill Lynch High Yield Index was meantime unchanged on the day after five straight sessions before that on the upside, including Wednesday, when it had improved by 0.054%, its 10th gain in the previous 11 sessions.

That unchanged reading left its year-to-date return to at 2.124%, where it had finished on Wednesday, establishing a third successive new peak level for the year.

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