Energizer on tap; PG&E decline continues; Targa unchanged; Xerox active; energy on the rise

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 15 – The primary high-yield market continued to show signs of a return on Tuesday with a forward calendar taking shape.

Energizer Holdings, Inc. announced late Tuesday plans to price a $600 million offering of eight-year senior unsecured notes.

Meanwhile, the secondary space was firm on Tuesday with equity markets buoyed by a strong day for tech and crude oil futures up more than 3%.

Energy names were again on the rise with California Resources Corp.’s 8% senior notes due 2022 and Chesapeake Energy Corp.’s 8% senior notes due 2025 posting gains.

New paper from Targa Resources Partners LP and Targa Resources Finance Corp. remained active in the secondary space although the notes were trading largely flat.

While the overall space was firm, Pacific Gas & Electric Co.’s senior notes continued their decline after the struggling utility company announced it would file for bankruptcy by the end of January.

Energizer on tap

Energizer announced plans to price a $600 million offering of eight-year senior unsecured notes late Tuesday, according to a company news release.

Citigroup Global Markets Inc. is left lead on the Rule 144A and Regulation S deal, Prospect News previously reported.

Energizer received commitments for a $500 million senior secured incremental first-lien term loan and a $600 million senior unsecured one-year bridge loan backing the bonds.

J.P. Morgan Securities LLC, Barclays and Citigroup Global Markets Inc. are joint arrangers and bookrunners on the debt.

Proceeds will be used to fund the acquisition of the global auto care business of Spectrum Brands Inc.

Later may be better

The primary market continued to show signs of life on Tuesday with a late January/early February pipeline of deals continuing to take shape, sources say.

There is little doubt that a blowout deal from Targa Resources – 2019's first deal and the first to clear the market in five weeks – received a warm reception from accounts, market sources say.

However, from the issuer's point of view Targa was expensive.

Targa paid concessions of 5/8% on its 6½% senior notes due July 2027 and ¾% on its 6 7/8% senior notes due January 2029, according to sources.

There is an old saw about issuing junk bonds: “Sooner is better than later,” meaning that if an opportunity presents itself, issue while you can because market turbulence generated by the financial markets or geopolitics, which could impede issuance, is never far away.

Risks du jour might include the uncertainties surrounding trade talks between the United States and China, which roiled the markets in the run-up to year-end, or uncertainties surrounding Brexit, for example.

What's changed, and what might provide an issuer with food for thought about when to hit the market, is the Fed, a syndicate banker said on Tuesday.

Heading into autumn 2018, a hawkish Fed seemed to be hovering over the markets with tensed talons, in the form of assertions that the Fed funds rate could see four increases during 2019, possibly moving the top end of the target rate to 3%, or even higher.

However, the new year has seen the Fed morph into a cooing dove, with Fed watchers citing tamer than expected inflation and evidence of a slowing economy, suggesting that 2019 might see just one bump in the rate.

Some even say the Fed might stay its hand, altogether, or even bring a rate cut, should the economy falter.

The tamer Fed has been a rejuvenating force in the capital markets, particularly the fixed income markets, the banker said.

What's more, cash looking for a home in the leverage markets appears to be building up.

Fund flows to the dedicated high yield bond funds, which crawled to the end of 2018 deep in the red, turned on a dime in the new year, sources say.

At mid-January the flows are strongly positive.

The combined high yield bond funds were tracking a hefty $3.5 billion of net inflows in the week that began with the Thursday, Jan. 10 open, and is set to conclude with Wednesday's close, according to a trader.

With one reporting day left in that period, it's already the fifth largest weekly inflow on record, the trader said.

Cash looking for a home in the high-yield ETFs and actively managed high-yield bond funds translates into demand for bonds, which can be expected to generate a new issue calendar, and to bring rates down for prospective issuers, sources say.

Hence, we may be in a unique passage when sooner is not necessarily better than later, the banker said.

Being the first issuer to brave the primary market in five weeks turned out to be an expensive undertaking for Targa, sources say.

Targa unchanged

New paper from Targa remained active in the secondary space, although the paper was largely trading flat, according to a market source.

The 6 7/8% senior notes due 2029 continued to hover around 102 in active trading. More than $30 million of the bonds were on the tape by the late afternoon.

Targa’s 6½% senior notes due 2027 continued to trade around 101½, a market source said. More than $25 million of the bonds changed hands during Tuesday’s session.

While the notes remained sharply above their issue price, they came in slightly from the highs reached their first full day in the secondary space.

Targa priced a $750 million issue of the 6 7/8% notes and a $750 million issue of the 6½% notes at par in a quick-to-market trade last Thursday.

The 6 7/8% notes traded as high as 102 5/8 and the 6½% notes traded as high as 102 3/8 last Friday but have since come in.

Energy on the rise

Tuesday was another strong day for the energy sector with crude oil futures jumping as China moves to bolster its economy.

While volume was light compared to recent sessions, California Resources’ 8% senior notes due 2022 rose 1 point to close Tuesday at 80, according to a market source.

Chesapeake Energy’s 8% senior notes due 2025 were also on the rise with the notes gaining 1½ points to close Tuesday at 98 5/8.

Crude oil futures catapulted past $52 on Tuesday with the barrel price of WTI crude oil for February delivery settling at $52.11, an increase of $1.60 or 3.2%.

Oil futures were on the rise as China moves to bolster its slowing economy with tax cuts, infrastructure investments and credit availability, CNBC reported.

PG&E decline continues

Pacific Gas & Electric’s senior notes continued to dominate the secondary space on Tuesday with the notes again trading down as it missed the interest payment on its 5.4% notes due 2040.

The 6.05% senior notes due 2034 remained the most active in the capital structure. The notes dropped another ½ point to close Tuesday at 80¼.

More than $205 million of the bonds changed hands during Tuesday’s session. The notes dropped more than 7 points on Monday.

Pacific Gas & Electric’s 3½% senior notes due 2020 dropped 2¼ point to 79¾ with more than $53 million of the bonds changing hands during Tuesday’s session.

The 3½% senior notes due 2025 were down 3¼ points to 75¾ with more than $28 million of the bonds on the tape.

The 5.4% notes due 2040 dropped 2¼ point to 77 with more than $25 million of the bonds on the tape.

Hedge funds were largely driving the trading activity, a market source said.

Pacific Gas & Electric’s senior notes have dominated the secondary space since last Tuesday when S&P downgraded the company to junk with Moody’s Investors Service following suit later in the week.

Fitch Ratings downgraded PG&E Corp. and Pacific Gas & Electric Co.’s long-term issuer default ratings to C from BBB- on Tuesday, due to the company entering into a default-like process.

Pacific Gas & Electric announced Monday it would file for bankruptcy by the end of January and would not make the $21.6 million interest payment on its 5.4% notes due 2040, which was due on Jan. 15.

Monday inflows

The cash flows of the dedicated high-yield bond funds were positive on Monday, a trader said.

High-yield ETFs saw $161 million of inflows on the day.

Actively managed funds saw $55 million of inflows on Monday, the trader said.

Indexes flat to up

Indexes were flat to up on Tuesday after a flat to down day on Monday.

The KDP High Yield Daily index dropped 1 basis point to close Tuesday at 68.60 with the yield now 6.55%.

The index was up 1 bps on Monday after a cumulative gain of 116 bps on the week last week.

The ICE BofAML US High Yield index rose 17.5 bps with the year-to-date return now 3.206%.

The index dropped 17.1 bps on Monday after a cumulative gain of 190.8 bps on the week last week.

After closing 2018 with a year-to-date return of negative 2.265%, the index catapulted past 3% returns in the first two weeks of 2019.

The CDX High Yield 30 index rose 38 bps to close Tuesday at 103.86. The index was down 42 bps on Monday after a cumulative gain of 110 bps on the week last week.

© 2015 Prospect News.
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