Hercules, PetroQuest, Creditcorp cap nearly $6 billion week; new Valeant notes stay strong

By Paul Deckelman and Paul A. Harris

New York, June 28 - The high-yield primary market priced a trio of deals on Friday to bring to a close its biggest-volume week in over a month, syndicate sources said.

The energy sector accounted for most of the day's action, with Hercules Offshore, Inc., a provider of maritime services to offshore exploration and production companies, coming to market with $400 million eight-year notes, which were seen by traders to have firmed solidly when they hit the aftermarket.

There was also a $200 million deal from exploration and production operator PetroQuest Energy, Inc., which priced a tranche of bonds mirroring the terms of its existing 2017 notes.

The sole non-energy offering of the day was a quick-to-market $165 million of five-year secured notes from Creditcorp, an alternative financial services provider.

Those deals topped off a week that saw more than $5.8 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers come to market in eight tranches - more than twice the $2.39 billion that had priced in seven tranches the previous week ended June 21, according to data compiled by Prospect News.

It was, in fact, the first time in five weeks that new issuance had moved above the recent $2 billion-to-$3 billion per week range that seemed to have become the norm since late May, as primaryside activity dried up amid investor angst over the prospect of higher interest rates as the Federal Reserve winds down its quantitative easing program of monetary stimulus.

The week's deals lifted Junkbondland's year-to-date tally to $172.05 billion of new paper in 380 tranches, running 24.9% ahead of the pace set last year on the way to a new record-high issuance total.

Traders, meantime, saw continued brisk activity in Thursday's giant-sized two-part offering from Valeant Pharmaceuticals International, Inc., which accounted for much of this week's increased issuance. Those bonds, which had surged by multiple points in Thursday's initial aftermarket dealings, held on to most of those gains on Friday.

The traders said that in general the market tone remained stronger for about the third consecutive session and was improved from the market's doldrums of a week ago.

Statistical market performance indicators were mixed on Friday after having been up across the board on Thursday, but were also mixed versus the losses all around seen in those indicators last week.

Hercules at the tight end

Friday's session saw three issuers complete single-tranche offers, raising a combined total of $764 million.

Hercules Offshore, Inc. priced a $400 million issue of eight-year senior notes (B3/B) at par to yield 8¾%.

The yield printed at the tight end of the 8¾% to 9% yield talk.

The deal "went fine and played to a good book," according to a trader.

Deutsche Bank, UBS, Credit Suisse, Goldman Sachs and Pareto were the joint bookrunners.

Proceeds, together with cash on hand, including $104 million expected from the sales of its inland barge rigs, domestic liftboats and related assets, will be used to fund the acquisitions of shares of Discovery Offshore SA and for the final payment of $333.9 million due for Discovery Triumph and Discovery Resilience.

PetroQuest prints mirror notes

PetroQuest Energy, Inc. priced a $200 million issue of notes mirroring its 10% senior notes due Sept. 1, 2017 (Caa1/B) at par to yield 10%.

The reoffer price came at the cheap end of the 100 to 101 price talk.

J.P. Morgan and Wells Fargo were the joint bookrunners.

The Lafayette, La.-based independent energy exploration and production company plans to use the proceeds to fund the acquisition of producing oil and gas assets located in the shallow waters of the Gulf of Mexico from Hall-Houston Exploration II, LP, Hall-Houston Exploration III, LP, Hall-Houston Exploration IV, LP and GOM-H Exploration, LLC for roughly $193 million in cash.

Creditcorp in line with talk

Creditcorp priced a $165 million issue of 12% five-year senior secured notes (B3/B) at 99.08 to yield 12¼%.

The reoffer price and yield came in line with price talk.

The transaction demonstrated that there is still cash out there to be put to work, especially on a deal that comes with a little juice, a market source said.

Jefferies ran the books.

Proceeds will be used to refinance the company's existing credit facility, for general corporate purposes and to fund a dividend.

Creditcorp is a provider of alternative financial services based in Sydney, Australia.

Run-up to Independence Day

Look for a quiet three-day week ahead of Thursday's Independence Day holiday in the United States.

Crossing the weekend there is only one deal thought to be left on the active forward calendar.

France's Technicolor ran a mid-June roadshow for its $330 million offering of seven-year senior secured notes (expected ratings B3/B).

Since then, it has been radio silence, market sources say.

The deal is being reworked, according to a trader, who added that price discussions near the end of the roadshow were as high as 9½%.

JPMorgan, Goldman Sachs and Morgan Stanley are the joint bookrunners.

Thursday's news of another substantial weekly cash outflow from the high-yield mutual funds did not take the market by surprise, according to a trader who spoke late in the Friday session.

The end of the June 17 week and the beginning of the June 24 week were decidedly negative, the trader said.

"By Tuesday, the market had found the bottom, Wednesday was better, and Thursday was definitely better," the trader said.

"Friday started off with a good tone, then faded a little," the trader said, adding that the index fell ¼ to ½ point during the final session of June.

Many high-yield players are turning the Independence Day holiday ahead into a four-day weekend, sources said on Friday.

"It's a big vacation week, and then we head into the earnings season blackout," a buyside source said.

Beyond that, summer in high yield could be volatile, the buysider added.

Heroic high for Hercules

In the aftermarket, when the new Hercules Offshore 8¾% notes due 2021 were freed for secondary dealings after pricing at par, a trader said that the Houston-based oilfield maritime services provider's new paper "did well - it was obviously very well received."

He personally saw the bonds at 101¼ bid, but said that they had to have moved up, putting the bonds around a 101½ to 101¾ range going home.

Hercules "was up a couple of points," a second trader said, pegging the bonds as high as 102½ bid, 103 offered "at one point" during the session.

A third trader saw the bonds at 101 5/8 bid, 102 offered.

On the other hand, the traders did not see any kind of immediate aftermarket activity in the new PetroQuest 10% notes due 2017 or in Creditcorp's 12% senior secured notes due 2018.

One trader suggested that the latter deal - smallish in size and said to have been pre-marketed - "probably got put away by investors" eager to just clip its fat coupons over the next few years until it either is taken out or matures.

Valeant still very strong

Traders were still buzzing about Valeant Pharmaceuticals' new offering, which came to market on Thursday and provided the recently struggling junk market with a big shot in the arm.

The Canadian specialty drug manufacturer's $3.23 billion two-part offering was not only the first megadeal seen in the junk market in over a month and the biggest since late March, it also traded much higher when the new issue was freed for secondary market dealings.

And on Friday, the traders said, it was still holding most of those hefty initial gains

A trader said that Valeant's $1.6 billion of 6¾% notes due 2018 were trading at 102 3/8 bid, 102 5/8 offered.

That was "a little bit off its highs," which had brushed a 103 to 103½ bid context, but still represented strong performance, he said.

He meantime also saw its $1.63 billion of 7% notes due 2021 trading as tight as 103 5/8 bid, 103¾ offered, which he said was also back from its highs around 104, but not by much.

He attributed what little retreat there had been to "profit taking" off the strong initial gains.

"It still did very well," he enthused.

"Accounts have a lot of cash out there, and they want to play in this."

In fact, he said, he would not be surprised to find some of the major hedge fund and private equity investors taking down chunks of as much as $50 million to $100 million of the big deal - he named one well-known investment firm to illustrate that "companies like that are definitely buying into it" (although he did not know if the firm in particular was buying the deal).

A second trader said that Valeant "did very well, quoting the five-year piece in the 102¼ to 102½ area and the eight-year tranche around 103 to 104.

Other deals stay firm

Going back to other new deals that had priced this week, a trader commented that Solera Holdings Inc.'s 6% notes due 2021 "didn't do very much," quoting the Westlake, Texas-based insurance industry software provider's bonds in a par to 100¼ bid context.

The $850 million drive-by issue had priced at par on Thursday after having been upsized from an originally announced $700 million.

He also said that TransDigm, Inc.'s 7½% senior subordinated notes due 2021 "hung right in there" around the 101¾ to 102 levels that the Cleveland-based aircraft components manufacturer's $500 million quick-to-market deal had occupied after pricing at par on Tuesday, after which it jumped more than a point during Wednesday's strong market and then held at that altitude.

And he pointed out that Gibson Energy, Inc.'s 6¾% notes due 2021"did OK," having gotten as good as par bid, 100½ offered on Thursday before "leveling off" on Friday at 99¾ bid, par offered.

The Calgary, Alta.-based energy operator's $500 million deal had priced on Tuesday at 98.476 to yield 7% as part of a larger two-part offering that also included a tranche of Canadian dollar bonds.

Firmer tone seen

Overall, one of the traders said, "our market was certainly firmer across the board, I would say by at least ½ point.

"There was not a lot of volume - but it was definitely firmer."

Last week, he noted, "everything was getting killed, though not on a lot of volume. Now you have it the other way around - not a lot of volume, but it was up."

Market indicators mixed

Statistical junk market performance indicators turned mixed on Friday after having been higher across the board over the previous two sessions.

However, they also turned mixed on the week after having been lower all around at the end of the previous week ended Friday, June 21.

The Markit Series 20 CDX North American High Yield index retreated by 9/16 point on Friday to end at 102 5/8 bid, 102 7/8 offered. It was the first down session for the index after three straight sessions on the rise including Thursday, when it was up by 5/8 point.

But the index ended the week well up from the 101½ bid, 101¾ offered level seen the previous Friday.

The KDP High Yield Daily index notched its third consecutive advance on Friday, finishing up by 6 basis points at 72.86. That follows a 45 bps jump on Thursday.

Its yield fell for a third consecutive session, ending down 3 bps at 6.41%. On Thursday, it had tightened by 14 bps.

Both the index reading and the yield compared unfavorably, though, to the previous week's 73.05 and 6.32% respectively.

And the widely followed Merrill Lynch High Yield Master II index also hit a hat trick on Friday with its third consecutive gain, rising by 0.212%, on top of Thursday's 0.484% rise.

Friday's gain lifted the index's year-to-date return to 1.46%, up from 1.246% on Thursday, and well up from Tuesday's 0.384% reading - its lowest level for the year.

However, despite that strong comeback of more than 100 bps seen in the latter part of the week, the index still showed a loss on the week of 0.118%, its seventh consecutive weekly downturn.

Last week, the index had lost a whopping 1.3% on the week, its biggest weekly decline of 2013, to finish with a cumulative return of 1.581%.

© 2015 Prospect News.
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