Tesoro megadeal, Diamondback and Gulfport lead big primary session; funds gain $3.75 billion

By Paul Deckelman and Paul A. Harris

New York, Dec. 15 – With high yield new-issue activity expected to dwindle in the days remaining before the end of the year, syndicate sources reported what could be the primary’s last hurrah on Thursday, as five issuers – three of them from the red-hot energy sector – priced offerings during the multi-billion-dollar session.

Tesoro Corp. had the big deal of the day – a restructured $1.6 billion two-part offering of seven- and 10-year notes from the petroleum refiner and marketer.

Oil and natural gas exploration and production company Gulfport Energy Corp. priced $600 million of 8.5-year notes while sector peer Diamondback Energy, Inc. brought an upsized $500 million issue of 8.5-year notes to market.

Away from the energy realm, business software company Open Text Corp. priced a $250 million add-on to its existing June 2026 bonds, while telecommunications operator Cincinnati Bell Inc., did an upsized $200 million tap of its existing July 2024 notes.

Wednesday’s megadeal from Noble Holding International Ltd. was easily the busiest Junkbondland credit of the session, trading off from its discounted issue price.

Other recent offerings seen both busy and easier included the deals from RSP Permian, Inc. and Concho Resources Inc.

Statistical market performance measures turned mixed on Thursday, after being lower on Wednesday – their first negative session this month – and higher across the board on Tuesday. It was their second mixed performance in the last four sessions.

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – posted a fourth consecutive week of net inflows, after having broken a string of six straight outflows before that.

Sources familiar with the fund-flow statistics said Thursday that $3.75 billion more came into those weekly-reporting-only domestic funds than left them via investor redemptions during the week ended Wednesday – one of the biggest gains so far this year and ever. That big cash addition followed the $2.034 billion inflow reported last Thursday (see related story elsewhere in this issue).

Tesoro restructures

In what is expected to be the last big day in the primary market for 2016, five issuers raised an overall total of $3.16 billion in a combined five tranches on Thursday.

Executions bore the earmarks of a little wear and tear on the new issue market, as one tranche came wide of talk, three came at the wide end, one came in the middle and one at the rich end.

Tesoro priced a restructured $1.6 billion two-part senior bullet notes deal (Ba2/BB+).

The transaction, which saw $150 million of proceeds shifted to the long-maturity tranche from the short-maturity tranche, featured a downsized $850 million amount of seven-year notes that priced at par to yield 4¾%. The tranche was cut from $1 billion. The yield printed at the wide end of yield talk that had been set in the 4 5/8% area. Initial guidance was in the high 4% area.

In addition, Tesoro priced an upsized $750 million of 10-year notes at par to yield 5 1/8%. The tranche grew from $600 million. The yield printed at the wide end of yield talk and initial guidance, both in the 5% area.

In an investor-friendly structural change, call protection was extended to the life of the bonds in both tranches. The seven-year notes were originally structured to come with three years of call protection. The 10-year notes were originally structured to come with five years of call protection.

The structural change – extending call protection to the life of the bonds – was made in order to assure that there would not be a sloppy book in the secondary market, a portfolio manager said.

The dealer made late phone calls to the accounts asking them to restate “real” orders, as opposed to orders that might have been padded against the possibility of tough allocations, the manager added.

Tesoro probably played to an oversubscribed book but it was almost certainly not vastly oversubscribed, the source concluded.

The quick-to-market deal was shopped by means of an internet roadshow.

Goldman Sachs was the left bookrunner. Mizuho, MUFG and Wells Fargo were the joint bookrunners.

The San Antonio-based owner, operator, developer and acquirer of crude oil and refined products logistics assets plans to use the proceeds, along with cash on hand and revolver borrowings, to fund the cash consideration and other amounts payable for its acquisition of Western Refining, Inc. and to repay and redeem outstanding debt of Western Refining and its subsidiaries.

Gulfport’s 8.5-year notes

Gulfport Energy priced a $600 million issue of 8.5-year senior notes (B2/B+) at par to yield 6 3/8%.

The yield printed at the wide end of yield talk that was fixed in the 6¼% area.

Credit Suisse, BofA Merrill Lynch, Barclays, KeyBanc, PNC, Scotia and Wells Fargo were the joint bookrunners for the acquisition financing.

Diamondback prices wide

Diamondback Energy priced an upsized $500 million issue of 5 3/8% senior notes (B1/BB-) at 99.168 to yield 5½%.

The issue was increased from $250 million.

The yield printed 12.5 basis points beyond the wide end of yield talk that had been announced in the 5¼% area.

Credit Suisse, Goldman Sachs and J.P. Morgan were the joint bookrunners.

The Midland, Texas-based independent oil and gas company plans to use the proceeds to fund the acquisition of certain oil and natural gas assets of Brigham Resources Operating, LLC and Brigham Resources Midstream, LLC.

Open Text taps 5 7/8% notes

Open Text priced a $250 million add-on to its 5 7/8% senior notes due June 1, 2026 (Ba2/BB) at 102.75 to yield 5.421%.

The reoffer price came in the middle of the 102.5 to 103 price talk.

Barclays was the left bookrunner for the acquisition deal. RBC and Citigroup were the joint bookrunners.

Cincinnati Bell upsized, rich

In the only tight-pricing deal of the session, Cincinnati Bell priced an upsized $200 million add-on to its 7% senior notes due July 15, 2024 (B3/B) at 105 to yield 5.959%.

The amount was increased from $150 million.

The reoffer price came at the rich end of the 104.5 to 105 price talk.

Morgan Stanley was the sole bookrunner for the debt refinancing.

Backlogged calendar

Meanwhile the active forward calendar has a backlog of deals that have not generated any recent news, sources say.

Included on the list is Baffinland Iron Mines Corp., which is attempting to place $350 million of five-year senior secured notes (Caa1/B-) via Goldman Sachs.

Early guidance has the deal coming in the 9% area, a trader said.

Avison Young (Canada) Inc. is in the market with a $130 million offering of senior secured notes due 2021 (B3/B+) via sole bookrunner William Blair.

And Downstream Development Authority has been attempting to place $250 million offering of six-year senior secured notes via bookrunner Nomura.

Initial yield was 9½% to 9¾%, according to a market source.

The deal was expected to price late last week. In the interim it has been radio silence on Downstream Development, sources say.

Energy issues easier

In the secondary market, a trader said that he observed two trends on Thursday.

One was that “a majority of new issuance has been coming in the [oil and natural gas] E&P space,” while the second was that these issues “were struggling a little, with oil [prices] off yesterday and flat today.”

The benchmark U.S. crude oil, West Texas Intermediate for January delivery, lost 14 cents per barrel Thursday on the New York Mercantile Exchange, settling at $50.90, after having nosedived by $1.94 a barrel on Wednesday.

The key international grade, Brent crude for February delivery, edged up by 12 cents per barrel on the London ICE Futures Exchange on Thursday, settling at $54.02, after having swooned by $1.82 per barrel on Wednesday.

Against that backdrop, he said that Noble Holding’s new 7¾% notes due January 2024 “were active, but trading below their deal price” of 98.01. He quoted the notes going out at 97¾ bid.

At another desk, a trader pegged the bonds at 97 7/8 bid, calling them down 3/8 point on the session, with over $123 million traded, easily the busiest high-yield credit of the day.

Tuesday deals below issue

Traders saw both of the deals which had priced on Tuesday also off from their respective issue prices.

AmeriGas Partners LP’s 5½% notes due May 2025 were seen by a trader in a 99½ to 99¾ bid context, down from their par issue price.

At another desk, a market source saw the bonds at 99½ bid, calling that down around ½ point on volume of over $16 million.

The new Concho Resources 4 3/8% notes due January 2025 traded at 99¾ bid, a market source said, below their par issue price.

At another shop, the bonds were quoted at 99 3/8 bid, a 3/8 point loss on the day, with over $16 million having changed hands.

Also among the oil and gas names, RSP Permian’s 5¼% notes due January 2025 were seen having retreated to 99 7/8 bid, down 3/8 point on the day, with over $15 million moving around.

The recent Antero Resources Corp. 5% notes due March 2025 were down 1 point on the day at 98 bid, but a trader said “they’ve been struggling ever since they priced” at par on Dec. 7. Some $12 million traded on Thursday.

Indicators turn mixed

Statistical market performance measures turned mixed on Thursday, after being lower on Wednesday – their first negative session this month – and higher across the board on Tuesday. It was their second mixed performance in the last four sessions.

The KDP High Yield Index dropped by 23 basis points on Thursday to end at 71.35, its second straight loss and third in the last 13 sessions, which also included a 10-session winning streak. The index had been off by 1 bp on Wednesday.

Its yield rose by 7 bps to end at 5.48%, after having been unchanged on Wednesday. Before that it tightened for 13 straight sessions.

However, the Markit Series 27 CDX Index edged up by almost 1/16 point on Thursday to 105 7/8 bid, 105 15/16 offered. The index retreated about 3/8 point on Wednesday.

The Merrill Lynch High Yield Index lost 0.401%, after being unchanged Wednesday. It was the second loss in the last 13 sessions, a stretch which also included 10 straight gins.

The setback left its year-to-date return at 16.682%, down from 17.152% on Wednesday, which had been its third consecutive new 2016 peak level.

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