Vector prices; INTL FCStone postpones; Weatherford ‘destroyed’; Intelsat active; Sanchez drops

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 30 – While market conditions were cited as the reason one potential issuer pulled an offering on Tuesday, the domestic primary market did see one deal price.

Vector Group Ltd. priced a $325 million issue of eight-year senior notes (B2/B-) at par to yield 10½% on Tuesday.

However, INTL FCStone Inc. became the second prospective issuer in a week to postpone a deal.

The forward calendar narrowed to GEP Haynesville LLC and HC2 Holdings, Inc. with the current market environment pushing up the cost of capital.

Meanwhile, trading volume was light in Anixter, Inc.’s newly priced 6% senior notes due 2025 (Ba3/BB/BB-) with the notes slightly weaker.

Oil futures continued to drop on Tuesday, dragging down the overall market.

Weatherford International plc’s junk bonds tanked in high-volume activity on Tuesday.

While less active on Monday, the notes also saw significant declines after the company reported third-quarter earnings.

Sanchez Energy Corp.’s 7¼% senior notes due 2023 also dropped.

The company announced the resignation of its chief financial officer on Monday.

The notes were also trading down on news Chesapeake Energy Corp. would acquire WildHorse Resource Development Corp.

While the acquisition put pressure on competitor Sanchez Energy, Chesapeake Energy’s junk bonds were stable to slightly improved on Tuesday, even as its equity tanked.

California Resources Corp. 8% senior secured second-lien notes due December 2022 were among the most actively traded issues in the secondary space with the notes shaving off more than 2 points as oil futures continued their decline.

Intelsat SA’s junk bonds were mixed on Tuesday after the satellite communications provider’s much anticipated third-quarter earnings report.

While some bonds dropped, others were seen unchanged on the day.

Vector prices atop talk

Vector Group priced a $325 million issue of eight-year senior notes (B2/B-) at par to yield 10½% on Tuesday.

The yield printed on top of yield talk.

Earlier guidance was 10¼% to 10½%, a trader said.

Jefferies was the sole bookrunner for the debt refinancing and general corporate purposes deal.

INTL FCStone postpones

Elsewhere on Tuesday, INTL FCStone became the second prospective issuer in a week to postpone a deal.

The New York-based financial services provider cited unfavorable market conditions as it withdrew its $350 million offering of five-year senior secured notes (Ba3/BB-), according to a company press release.

The deal was marketed on a high yield roadshow during the Oct. 22 week, at the conclusion of which came official price talk of 8½% to 8¾% including an original issue discount.

Official talk came tight to initial guidance in the mid-to-high 8% area, market sources said. (See related story in this issue.)

Last Thursday GFL Environmental Inc. withdrew a $400 million offering of senior unsecured notes (Caa2/CCC+) and shifted the proceeds to its concurrent bank loan.

Prickly primary

The high yield new issue market – issuer friendly even into the present year, with tight coupons and rich prices – has lately become a challenging and much more expensive place for companies to raise cash, market sources say.

Coupons, which had been heading north in recent months, in step with benchmark rates, lately gapped higher, spurred on by capital markets volatility, they add.

Even the few deals that are getting done in the present environment represent costs of capital considerably higher than the same issuers would have faced just two weeks ago, a syndicate banker said.

And thanks to the volatility, the calendar is nearly empty, a conundrum for investors with cash they must put to work.

That has driven up the bid in the secondary market, traders say.

However, eventually volatility will subside, the new issue market will almost certainly be repriced higher, and issuers will return, a trader said.

When that happens presently high secondary levels will adjust accordingly, the source advised.

Thin calendar

The postponements of INTL FCStone and GFL Environmental winnowed a backlog of deals, which ran roadshows and awaited placement at the end of last week.

However, those postponements did not eliminate that backlog altogether.

GEP Haynesville, which had also been scheduled to price a deal last Friday, was continuing to endeavor to get a deal done, but perhaps a downsized one, a trader said.

The Woodlands, Texas-based oil and gas producer had a roadshow for a $600 million offering of five-year senior notes (B3/B).

The chatter in the market, early Tuesday, had a downsized $500 million offering coming with a 9% coupon and two- to three points of OID, the trader said.

Another trader expressed a belief that the deal has been shelved.

Initial talk had GEP Haynesville coming to yield 8½% to 8¾%.

Meanwhile, the market awaits HC2 Holdings’ $535 million offering of five-year senior secured notes (Caa1/B-).

The deal, via bookrunner Jefferies, was scheduled to conclude a full roadshow on Monday.

And in the euro-denominated market, England-based flooring company Victoria plc is on the road with a €450 million offering of five-year senior secured notes (expected ratings BB-/BB), which is expected to price before the end of the week.

Anixter weaker

Anixter’s 6% senior notes due 2025 were seen slightly weaker in the secondary space on Tuesday, although trading volume was light, sources said.

The notes were seen at 99 7/8 bid, par 3/8 offered. They traded as high as par ½ after breaking for trade on Monday, sources said.

Anixter priced a $250 million issue of the 6% notes at par in a Monday drive-by.

Weatherford ‘destroyed’

Weatherford’s junk bonds got “destroyed,” in high-volume activity on Tuesday with the whole capital structure feeling the pain, sources said.

Weatherford’s bonds were seen down 10 to 11 points on Tuesday. While trading volume was lighter, the notes also declined on Monday, sources said.

Weatherford’s 9 7/8% senior notes due 2025 dropped 10½ points on Tuesday to 75 5/8, a market source said. The notes were trading north of 90 last Friday.

More than $31 million of the bonds were on the tape by late afternoon Tuesday.

Weatherford’s 9 7/8% senior notes due 2024 dropped another ½ point to 75½ after a 10 point drop on Monday.

More than $28 million of the bonds were on the tape by the late afternoon.

The 7¾% senior notes due 2021 dropped 11 points to 80¼ with more than $26 million of the bonds changing hands.

“The whole structure is doing poorly,” a market source said.

The notes have been under pressure since Weatherford reported earnings prior to the market open Monday.

While Weatherford’s bottom-line results beat expectations, it missed on revenue.

Weatherford reported a non-GAAP loss per share of 10 cents for the quarter, versus analyst expectations of a loss per share of 12 cents.

However, Weatherford reported revenue of $1.44 billion, which missed analyst expectations of revenue of $1.52 billion.

The issue is with cash flow, a market source said. “People are wondering if they’re going to be able to pay their coupons,” the source said.

Sanchez drops

Sanchez Energy’s 7¼% senior notes due 2023 dropped about 2 points in high-volume activity on Tuesday, sources said.

The notes were trading in a 92¼ to 92½ context with more than $25 million on the tape by the late afternoon.

Sanchez announced the resignation of chief financial officer Howard Thill on Monday and the appointment of Cameron W. George as interim CFO, according to a company news release.

The notes were also under pressure on Tuesday due to Chesapeake Energy’s acquisition of WildHorse.

The acquisition will increase Chesapeake Energy’s presence in the Eagle Ford shale formation where Sanchez is also active, a market source said.

Chesapeake stable

Chesapeake Energy’s equity tanked on Tuesday after it announced it would acquire WildHorse in a cash and stock deal valued at $4 billion.

However, Chesapeake Energy’s junk bonds were unchanged to slightly improved on the news. The petroleum and natural gas exploration company’s 8% senior notes due 2025 were active with the notes up slightly to trade at par on Tuesday, a market source said.

However, the notes were level from Friday’s close. More than $23.5 million of the bonds were on the tape by the late afternoon.

Chesapeake’s 7% senior notes due 2024 were also level. The notes were continuing to trade in the 96½ to 96¾ context in light volume, a market source said.

While the deal is credit negative with Chesapeake Energy acquiring WildHorse’s debt in the transaction, WildHorse has relatively low debt levels, a market source said.

California Resources drops

California Resources 8% senior notes due 2022 were among the most actively traded issues in the secondary space on Tuesday.

The activity was “unsurprising,” given the continued slide of crude oil futures, a market source said.

The 8% notes dropped 2¼ point in the high-volume activity. They were seen at 88 bid, 89 offered and were trading around 88¼, sources said.

The barrel price of West Texas intermediate crude oil for December delivery continued its downward spiral on Tuesday.

More than $50 million of the bonds were on the tape by the late afternoon.

After dropping more than $1 in intraday trading, crude oil futures settled at $66.18, a decrease of 86 cents or 1.3%. Crude oil futures have dropped more than 5% since the start of the week.

Intelsat’s earnings

Intelsat’s junk bonds were active after the satellite communications services provider released its closely watched third-quarter earnings report prior to the market open.

Intelsat Jackson Holdings SA’s 8½% senior notes due 2024 (Caa2/CCC+) were again the major volume mover in the secondary space with more than $73 million of the bonds changing hands during Tuesday’s session.

The notes dropped about 1 point in intraday trading, going as low as 97¼ in high-volume activity.

However, they rallied as the session progressed and closed the day relatively unchanged at 98¼, a market source said.

The notes dropped 1 point on Monday on news the company was seeking to amend its senior secured credit agreement to eliminate or adjust the interest expense coverage ratio.

While Intelsat Jackson’s notes were largely unchanged on the day, Intelsat Luxembourg’s 8 1/8% senior notes due 2023 dropped 2½ points to 83¼.

While Intelsat’s revenue and EBITDA were inline, the company missed on earnings, a market source said.

Intelsat reported a loss per share of 46 cents for the third quarter versus analyst expectations for a loss per share of 34 cents.

Monday outflows

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

High-yield ETFs sustained $417 million of outflows on the day.

Actively managed high-yield funds saw $375 million of outflows on Monday, the source said.

And for the second consecutive session the dedicated bank loan funds saw conspicuously negative cash flows, the trader said, adding that the loan funds sustained $280 million of outflows on Monday.

Of that amount $224 million came out of the bank loan ETFs, representing a record daily outflow from the loan ETFs, the trader said.

Monday's $280 million outflow from the bank loan funds trails the substantial $235 million of outflows that the loan funds sustained last Friday, according to the source.

Indexes mixed

Indexes were again mixed on Tuesday with some posting gains and others continuing to see losses.

The KDP High Yield Daily index continued its downward momentum and dropped 12 basis points to close Tuesday at 68.98 with the yield now 6.37%.

The index dropped 14 bps on Monday after a 60 bps decline last week.

The ICE BofAML US High Yield index was again down on Tuesday after a slight rebound on Monday. The index dropped 23.4 bps with the year-to-date return now 0.572%.

The index was up 4.4 bps on Monday. The index slid 74.5 bps on the week last week, dropping below the 1% year-to-date return threshold on Friday.

The CDX High Yield 30 index saw its second consecutive day of gains on Tuesday.

The index was up 11 bps to close the day at 104.95. The index gained 5 bps on Monday. The index was down 92 bps on the week last week.

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