Energy names lead drive-by borrowing binge, little moved in trading; secondary softer

By Paul Deckelman and Paul A. Harris

New York, March 5 - After a very busy first week in March with a couple of giant-sized deals that dominated and set the pace, the high-yield market opened the new week in a somewhat different direction.

There were no mega-deals, but a seemingly non-stop barrage of mostly medium-sized, quickly shopped transactions, announced in the morning and priced by the afternoon.

They racked up more than $3 billion in new junk paper by the time things wound down for the day.

There also were a handful of split-rated offerings totaling another nearly $4 billion, one of which actually was a megadeal and attracted some junk-investor attention.

Among the strictly junk issuers were a trio of energy sector names - Continental Resources, Inc., Bill Barrett Corp. and Key Energy Services, Inc., the latter actually an add-on to an existing issue.

Apart from the oil patch, there were offerings from Canadian transportation equipment maker Bombardier, Inc., from credit-card transaction processor Fidelity National Information Services, Inc. and from Hexion Specialty Chemicals, Inc.

The gaming sector saw two of the deals - from the purely junk-rated Pinnacle Entertainment, Inc., and from split-rated Wynn Las Vegas LLC.

Other split-rated borrowers visiting Monday's market included building products maker Masco Corp., healthcare facilities REIT Omega Healthcare Investors, Inc., and one of the last deals to price, telecom provider CenturyLink Inc.'s $2.05 billion two-part offering.

The Continental Resources, Pinnacle Entertainment and Fidelity National deals were upsized at pricing, syndicate sources heard.

With the exception of the Key add-on deal and CenturyLink, all other paper priced at par and traders said the new bonds moved very little from that anchor.

They said the new deals dominated secondary market activity. Most everything else was tending lower, including last week's star performer, ATP Oil & Gas Corp.

Statistical indicators of market performance were seen heading south across the board.

Continental Resources upsizes

A high-volume Monday in the high-yield and crossover primary markets saw 11 issuers bring a combined dozen tranches, raising a total of $7.23 billion.

Of that amount, $4.55 billion came from deals that came bearing at least one high-grade rating either from Moody's Investors Service, Standard & Poor's or Fitch Ratings.

Every one of Monday's deals was a drive-by.

Continental Resources, Inc. priced an upsized $800 million issue of 10.5-year senior notes (expected B1/BB+) at par to yield 5%, on top of the yield talk.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC and RBS Securities Inc. were the bookrunners for the quick-to-market deal, which was upsized from $650 million.

The Enid, Okla.-based energy producer plans to use the proceeds to pay down its revolver.

FIS prices $700 million

Fidelity National Information Services, Inc. priced an upsized $700 million issue of 10-year senior notes (Ba2/BB+/BBB-) at par to yield 5% on Monday, according to a syndicate source.

The yield printed on top of price talk.

Bank of America Merrill Lynch, Citigroup Global Markets, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Wells Fargo Securities LLC were the joint bookrunners for the quick-to-market issue, which was upsized from $500 million.

The provider dedicated to banking and payment technologies plans to use the proceeds to repay debt.

Although the deal came with a BBB- from Fitch, it was transacted on the high-yield desk and syndicate bankers polled after the Monday close were counting it among the day's junk issuance, putting the session's total high-yield amount of $3.38 billion proceeds.

Bombardier at the tight end

Canada's Bombardier priced a $500 million issue of 10-year notes at par to yield 5 ¾%.

The yield printed at the tight end of the 5¾% to 6% yield talk.

Citigroup Global Markets Inc., RBC Capital Markets, LLC and UBS Securities LLC were the joint bookrunners for the quick-to-market issue which, although junk rated by Moody's and S&P, was transacted on the investment-grade desk.

The Valcourt, Quebec-based company plans to use the proceeds for general corporate purposes, including paying down its 6¾% notes due 2012.

Bombardier is a designer manufacturer, distributor and marketer of motorized recreational vehicles and power sports engines.

Hexion atop price talk

Hexion U.S. Finance Corp. priced a $450 million issue of eight-year first-priority senior secured notes (Ba3/B-) at par to yield 6 5/8%.

The yield printed on top of price talk that tightened from earlier talk of 6¾% to 7%.

J.P. Morgan Securities LLC, Bank of America Merrill Lynch, Bank of America Merrill Lynch, Citigroup Global Markets, Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. and UBS Investment Bank were the bookrunners for the quick-to-market issue.

Bill Barrett yields 7%

Bill Barrett Corp. priced a $400 million issue of 10.5-year senior notes (B1/BB-) at par to yield 7%.

The yield printed on top of the price talk.

J.P. Morgan Securities LLC, Bank of America Merrill Lynch, Deutsche Bank Securities Inc., Wells Fargo Securities, LLC and BMO Capital Markets Corp. were the joint bookrunners for the quick-to-market deal.

The Denver-based oil and gas exploration and development company plans to use the proceeds to repay its revolver and for general corporate purposes, including repayment of the entire $172.5 million 5% convertibles due 2028.

Pinnacle upsizes

Pinnacle Entertainment, Inc. priced an upsized $325 million issue of 10-year senior subordinated notes (B3/B) at par to yield 7¾% at the tight end of price talk, which was set in the 7 7/8% area.

J.P. Morgan Securities LLC, Bank of America Merrill Lynch, Barclays Capital Inc., Credit Agricole CIB, Deutsche Bank Securities Inc. and UBS Investment Bank were the bookrunners for the quick-to-market issue that was upsized from $250 million.

The Las Vegas-based gaming firm plans to use the proceeds to redeem its existing 7½% senior subordinated notes due 2015, repay its revolver and for general corporate purposes.

Key Energy taps 6¾% notes

Key Energy Services, Inc. priced a $200 million add-on to its 6¾% senior notes due March 1, 2021 (B1/BB+) at 102.50 to yield 6.301%.

The reoffer price came on top of the price talk.

Credit Suisse Securities (USA) LLC, Bank of America Merrill Lynch, RBC Capital Markets and Wells Fargo Securities LLC were the joint bookrunners for the quick-to-market add-on.

The Houston-based well servicing contractor plans to use the proceeds to repay debt under its senior secured revolver.

The original $475 million issue priced at par in March 2011.

Good executions, decent books

The chop seen in the European and North American stock markets on Monday impacted the secondary market more than the primary market, according to a high-yield syndicate banker.

The Monday executions were decent, the banker added. However, upsizings were more the exception than the rule and there was a tendency for deals to get done in the middle of talk. Four of the seven transactions came on top of original talk, two came at the tight end of talk and one came on top of downwardly revised talk.

Also three of the seven tranches above came with yields below 6%, a circumstance that prompted one syndicate banker to comment that in terms of absolute yield, the junk market may presently be as tight as it has ever been.

That situation is creating some pushback from investors, the banker said.

Order books for Monday's deals, while completely respectable in terms of size, were not as full as some of the deals that came to market last week.

Crossover deals

In the crossover space, CenturyLink, Inc. priced $2.05 billion of split-rated senior notes (Baa3/BB/BBB-) in two tranches on Monday.

The $1.4 billion of 5.8% 10-year notes sold at 99.042 to yield 5.821% with a spread of Treasuries plus 380 basis points. The paper was priced tighter than talk in the 387.5 bps area, the source said.

There was a second $650 million tranche of 7.65% 30-year bonds priced at 99.905 to yield 7.658% with a spread of Treasuries plus 450 bps. The bonds were sold at the low end of guidance in the 455 bps area.

Barclays Capital Inc., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and RBC Capital Markets LLC were bookrunners.

Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. priced a $900 million split-rated issue of 10-year first mortgage notes (existing ratings Ba2/BBB-) at par to yield 5 3/8%.

The yield printed at the tight end of price talk, which had been set in the 5½% area.

Deutsche Bank Securities Inc., Bank of America Merrill Lynch and J.P. Morgan Securities LLC were the bookrunners.

The deal's BBB- rating from Standard & Poor's notwithstanding, Wynn was priced on the high-yield syndicate desk.

Masco Corp. priced a $400 million issue of 10-year senior notes (Ba2/BBB-) at par to yield 5.95%.

The yield printed at the tight end of price talk, which was set in the 6% area, plus or minus 5 basis points.

J.P. Morgan Securities LLC, Citigroup Global Markets, Deutsche Bank Securities Inc., Wells Fargo Securities LLC and RBC Capital Markets were the joint bookrunners for the quick-to-market issue.

Omega Healthcare Investors, Inc. priced a $400 million issue of split-rated 12-year senior notes (expected ratings Ba2/BBB-) at par to yield 5 7/8%.

The yield printed at the wide end of the price talk, which was set in the 5¾% area.

Bank of America Merrill Lynch, Deutsche Bank Securities Inc., Jefferies & Co., RBS Securities Inc. and UBS Securities Inc. were the joint bookrunners for the quick-to-market deal.

New deals don't go very far

When the various new bonds that priced during the session began trading around, market participants said that for the most part, they did not venture far from the par level at which most of the paper had priced.

"Nothing was running away," was how one trader put it. "They're all trading right there [i.e., around issue], there's nothing moving up."

"They went nowhere," a second trader agreed, while a third declared that "pretty much all of the new issues were duds today."

Energy names little changed

One of the traders saw Bill Barrett's new 10.5-year notes at trading between 99¾ and par.

"A lot of bonds traded right around the par level or into par bids, that sort of thing - it leaves them 99¾ - par."

That's also where a second trader saw the Denver-based energy operator's new bonds.

A trader saw Key Energy Services' $200 million add-on to its 2021 notes, which priced at 102.5, trading between 102½ and 103¼ offered. He saw the final trades of the day go off around 102¾ bid, although "a small piece" was offered at 103.

The Continental Resources bonds priced late in the session, but were not seen in the aftermarket.

Noting that the Enid, Okla.-based energy operator's upsized $800 million issue priced at par to yield just 5%, a trader said, "If you can finance at 5%, why not? Get the money while you can."

Typically, that coupon is considered too lean to interest junk-bond denizens, but lately there's been a string of high-yield deals that priced at or a little more than 5%.

He also said that investors would still buy low-coupon bonds if that was what was in the marketplace. "Consider the alternative - Treasuries are 2%," the trader said.

"There's two schools of thought on this: Absolute yield versus spread," he added.

While a 5% bond's absolute coupon is pretty low by traditional Junkbondland standards, the trader said, "Spreads still are not the tightest I've ever seen. Not by a long shot."

Other deals hold around issue

As for the day's other deals, a trader said that Hexion's eight-year senior secured notes were offered at 1001/2. He had not seen any bid, but assumed a level of par bid, 100½ offered.

A trader saw Montreal-based aircraft and railroad car maker Bombardier's 10-year notes last left at 99¾ - par. He later saw them just offered at par, while another trader saw them 991/2-par.

As for the split- rated deals, a trader said "they could be run off their high-grade desks, but all of these quotes are from the high-yield market."

He saw Wynn Las Vegas 5 3/8% first mortgage notes due 2022 trading at par, leaving the Las Vegas-based casino operator's $900 million issue at 99¾ to par and later, in a 99¼ to 993/4.

A second trader said the bonds were at 99½ par.

Taylor, Mich.-based building products supplier Masco's split-rated 10-year senior notes were last seen trading around 99½ to par.

One of the traders said that health facilities REIT Omega Health's new bonds were trading into 100½ bid.

"Somebody popped out there with a 100½ bid and it got hit pretty quickly. They hit the bid and it left them offered," he said.

But another trader said Omega may be was the best bond of the day, trading at 100¼ to 100 1/2.

A trader said that with all of the new paper, "There might be a little bit of indigestion here."

"There are lots and lots of deals, so everybody has their choice," he added. "Nobody has to step up to do anything."

Market stays in new-deal mode

"Today's deals really were the focus," a trader said, "with a lot of last week's deals weaker."

Perhaps the only real exception to that rule, he said, was TransUnion Holding Co.'s 9 5/8% PIK/toggle switches due 2018.

The Chicago-based credit-reporting company priced $600 million of the notes on Friday at par to yield 9.629. They were heard to have moved as high as 102½ on the break.

On Monday, the trader saw the new bonds having firmed to 103 5/8 bid, calling it "the exception to the rule."

But otherwise, the trader said there was a lot of selling pressure, especially in the afternoon.

ATP trades off

For instance, a trader said that one of the high-fliers of Friday's session, Houston-based offshore energy operator ATP Oil & Gas, saw a modest amount of trading in its 11 7/8% second-lien senior secured notes due 2015, which knocked down more than $66 million in volume on Friday when the bonds rose by 3 points to the 69 level on positive production estimates for its newest Gulf of Mexico well.

He saw the bonds going out Monday around 68 1/8 bid, down from Friday's high of 69 3/8.

On Monday, round-lot volume was only about $4 million or $5 million traded.

Market indicators slide

Statistical measures of junk-market performance, which had been mixed on Friday, turned lower across the board Monday.

A market source said the CDX North American Series 17 High Yield index fell by 11/16 point, to 97 1/8 bid, 97 3/8 offered after having lost nearly a half-point on Friday.

The KDP High Yield Daily Index fell by 17 basis points on Monday to end at 74.49 after having gained 2 bps on Friday. Its yield rose by 9 bps, after coming in by 2bps on Friday.

And even the widely followed Merrill Lynch High Yield Master II Index, which had racked up 11 straight upside sessions dating back to mid-February, finally turned lower on Monday, losing 0.166% in contrast to Friday's 11th straight gain, a rise of 0.056%.

The loss dropped the index's year-to-date return down to 5.186%, versus Friday's 5.302% -- its highest level since the 5.68% reading on Aug. 3 of last year.

It is the current peak level for 2012 so far.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.