Targa prices first deal of the year; PG&E continues to dominate; Altice on the rise; funds add $1.05 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 10 – The high-yield primary market returned after a nearly six-week hiatus with one drive-by deal clearing the market.

Targa Resources Partners LP and Targa Resources Finance Corp. priced an upsized $1.5 billion amount of senior notes (Ba3/BB) in a quick-to-market late Thursday trade.

The deal was in high-demand and nearly doubled in size, sources said.

Meanwhile, the secondary space remained active with Pacific Gas & Electric Co.’s senior notes continuing to lead the charge.

After rebounding on Wednesday, Pacific Gas & Electric’s bonds were mixed on Thursday as Moody’s Investors Service followed S&P’s lead and downgraded the struggling utility company to junk.

California Resources Corp.’s 8% senior notes due 2022 gave back some of their gains on Thursday as crude oil futures showed signs of weakening during Thursday’s session.

Weatherford International plc’s 9 7/8% senior notes due 2024, Chesapeake Energy Corp.’s 8% senior notes due 2025 and EP Energy’s 9 3/8% senior notes due 2024 were also losing ground on Thursday.

Altice SA’s 7¾% senior notes due 2022 were on the rise in active trading on Thursday as consolidation rumors around Altice France continue to swirl.

Envision Healthcare Corp.’s 8¾% senior notes due 2026 were losing ground in high volume activity on Thursday.

Meanwhile, high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall liquidity trends in the junk market – saw inflows of $1.048 billion for the week ended Jan. 9, according to fund-flow statistics generated by AMG Data Services Inc.

The inflow marks the first of 2019 and breaks a streak of seven consecutive outflows.

The inflow over the past week has turned 2019 net positive with a cumulative inflow of $420 million.

Targa opens 2019 primary

In the first deal to clear the primary market since Nov. 29, Targa Resources Partners LP and Targa Resources Finance Corp. priced an upsized $1.5 billion amount of senior notes (Ba3/BB) in a quick-to-market late Thursday trade.

It included $750 million of 8.5-year notes that priced at par to yield 6½%, and an upsized $750 million tranche of 10-year notes which priced at par to yield 6 7/8%.

The deal doubled in size.

It kicked off as a single $750 million tranche of 8.5-year notes, subsequent to which a $500 million tranche of 10-year notes was added; the long tranche was ultimately upsized to $750 million from $500 million.

Demand was conspicuous with more than $4 billion of orders in the book, a trader said.

Allocations were expected to come well short of order sizes, a source said, adding that no formal price talk had circulated the market, heading into the Thursday close.

Initial price talk was in the high 6% area for both tranches.

BofA Merrill Lynch was the left bookrunner. Jefferies, Wells Fargo, Capital One, Goldman Sachs and TD were the joint bookrunners.

The Houston-based energy midstream company plans to use the proceeds for general corporate purposes including repayment of senior notes due 2019 or other senior notes, repayment of bank debt, and funding growth investments and acquisitions.

Targa's upsized deal was the first to clear the market since Mercer International Inc. priced $350 million of 7 3/8% senior notes due January 2025 on Nov. 29.

PG&E again downgraded

The secondary space remained active on Thursday with Pacific Gas & Electric’s senior notes continuing to dominate the space.

The issues were mixed on Thursday with some continuing to post gains, others losses and others trading sideways.

PG&E’s 3.3% senior notes due 2027 were the most actively traded issues in the secondary space with the notes up ¾ point to trade at 81¼, according to a market source.

More than $110 million of the bonds were on the tape by the late afternoon.

The 6.05% senior notes due 2034 were up ½ point to 90 with more than $84 million of the bonds traded.

The 3½% notes due 2020 were largely flat at 91 with more than $58 million of the bonds changing hands.

PG&E’s 3.95% senior notes due 2047 shaved off ½ point to trade down to 76 with more than $26 million of the bonds on the tape.

The notes have seen high-volume since S&P downgraded the utility company to junk on Tuesday due to its potential liability from the California wildfires of 2017 and 2018.

Moody’s Investors Service downgrade Pacific Gas & Electric’s senior unsecured rating to Ba3 from Baa2 and holding company PG&E Corp’s senior unsecured rating to B2 from Baa3 on Thursday.

The downgrade was due to challenges PG&E faces as its liabilities grow, liquidity reserves decline, and access to capital becomes more difficult, the ratings agency said. (See related article in this issue.)

Energy gives back gains

After a strong rally for the past eight sessions, energy was giving back some of its gains on Thursday as crude oil futures wavered between gains and losses during Thursday’s session.

California Resources’ 8% senior notes due 2022 dropped 1¼ point on Thursday.

The notes were quoted at 81 bid, 82 offered and traded down to 81¼, sources said. The notes remained active with more than $55 million bonds on the tape by the late afternoon.

Chesapeake Energy’s 8% senior notes due 2025 also dropped a little more than 1 point on Thursday.

The notes traded down to 98 5/8 with more than $26 million of the bonds on the tape by the late afternoon.

The notes rose 3 points during Wednesday’s session after the company released preliminary fourth quarter and end-of-year earnings information.

Weatherford’s 9 7/8% senior notes due 2024 dropped 2 points to 63¼.

While crude oil futures rallied in late day trading to close Thursday with gains, it showed signs of weakening.

Crude oil futures traded as low as $51.37 during Thursday’s session before rallying to close the day at $52.59, an increase of 23 cents, or 0.4%.

Altice rises

Altice’s 7¾% senior notes due 2022 were on the rise in active trading on Thursday as rumors of consolidation continue to swirl around the telecommunications company’s subsidiary in France.

The 7¾% notes rose 1½ points to 95 3/8 with $20 million of the bonds on the tape by the late afternoon, according to a market source.

There have long been rumors of consolidation surrounding the Netherlands-based multinational telecommunications company’s subsidiary Altice France.

News broke on Thursday that a senior Altice official met with a senior official from Iliad-Free raising speculation that there were again negotiations surrounding a potential merger between telecommunications operators in France.

Envision drops

Envision Healthcare’s 8¾% senior notes due 2026 were trading down in high-volume activity on Thursday.

The notes dropped ½ point to 93½, according to a market source. More than $30 million of the bonds were on the tape by the late afternoon.

Big inflows

The dedicated high-yield bond funds saw $1.048 billion of net inflows in the week to Wednesday's close, according to Lipper US Fund Flows.

The positive flows were backloaded. In the early part of the weekly reporting period, which started on Thursday, Jan. 3, flows were negative, a trader said.

However, the most recent and final session of the present reporting period, Wednesday, was strongly positive, with the combined funds seeing $1.3 billion of inflows on the day, the source added.

Those inflows were the largest daily inflows in 12 months, and reasonably broad-based, the trader said.

They included $570 million of inflows to the high yield ETFs and $730 million of inflows to actively managed funds, according to the source.

Indexes gain

Indexes were again mixed on Thursday after a mixed day on Wednesday.

The KDP High Yield Daily index rose 5 basis points to close Thursday at 68.65 with the yield now 6.52%.

The index was up 25 bps on Wednesday, 42 bps on Tuesday and 49 bps on Monday after a 70 bps gain last Friday.

The ICE BofAML US High Yield index dropped 3 bps on Thursday with the year-to-date return now 3.105%. While small, the decline was the index’s first of the new year.

The index rose 52.8 bps on Wednesday, 52.9 bps on Tuesday and 78.4 bps on Monday after jumping 109.9 bps last Friday.

The index closed 2018 with a year-to-date return of negative 2.265%.

The CDX High Yield 30 index rose 42 bps on Thursday. The index dropped 25 bps on Wednesday, after rising 43 bps on Tuesday and 62 bps on Monday.

The index jumped 137 bps last Friday.

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