Sunshine Oilsands deal opens week as market tries to rebound; American Eagle Energy on tap

By Paul Deckelman and Paul A. Harris

New York, Aug. 4 – The high-yield market opened the first full trading week in August on a relatively quiet note as one deal priced. Canadian energy operator Sunshine Oilsands Ltd. brought a downsized and heavily restructured three-year secured notes deal to market late in the session.

Elsewhere in the new-deal arena, American Eagle Energy Corp. unveiled plans for a $175 million five-year secured notes deal.

Traders meantime said the secondary market – battered towards the end of last week – was trying to mount a comeback on Monday, which included better levels on some of the recently priced offerings, including William Lyons Homes, Inc., NRG Yield, Inc., Consol Energy Inc. This applied even to the beat-up billion-dollar deal from Level 3 Communications, Inc., which had taken its lumps over the course of several sessions after pricing last Tuesday.

Away from the new deals, active names included Caesars Entertainment Corp., Tenet Healthcare Corp. and Sprint Corp.

Statistical market performance indicators were mixed on Monday for the first time after six consecutive sessions on the downside.

Sunshine Oilsands’ $200 million

Sunshine Oilsands priced Monday's only deal, a downsized and extensively restructured $200 million issue of 10% three-year senior secured notes at 93.801.

The deal, which was downsized from $325 million, came on top of price talk.

Imperial Capital was the physical bookrunner. Morgan Stanley and Scotia were the joint bookrunners.

The notes become callable at par on Aug. 1, 2015 and feature an escalating monthly call premium through maturity. There is also a mandatory yield maintenance premium of 7.298% payable at the two-year mark of Aug. 1, 2016, which will serve to “buy down” the call premiums during year three.

The notes also feature a springing maturity, which reduces the tenor to two years from three years unless the company raises $50 million of equity by Feb. 1, 2016.

The Calgary, Alta.-based company plans to use the proceeds to fund expenditures related to the West Ells project, phase 1 only, as well as to settle all outstanding accounts payable, for general corporate purposes and to fund the interest escrow account.

In early July, Sunshine Oilsands withdrew a $325 million offering of five-year senior secured notes. Proceeds from that deal, in conjunction with cash from a concurrent equity offering, were to fund expenditures related to the West Ellis project, phases 1 and 2.

American Eagle five-year notes

Elsewhere, the primary market continued to play catch-up with price moves seen in the high-yield market since mid-July, sources said.

The price for issuing new bonds has increased by ¼ to ¾ points, a trader said, adding that the market has been buzzing with rumors of deals undergoing price discovery and deals about to be postponed, although no official announcements have surfaced.

Amid light volumes and 1/8 to ¼ points of price improvement in the new week, one deal was announced on Monday, sources said.

American Eagle Energy expects to price $175 million of five-year senior secured notes (Caa1/expected CCC/) during the Aug. 11 week.

GMP Securities is the bookrunner.

Initial guidance has it coming with an 11% yield, according to a junk bond trader.

The Denver-based independent oil and gas acquisition, exploration and development company plans to use the proceeds to repay borrowings under its existing credit facility, with any remaining proceeds for general corporate purposes.

Apart from American Eagle Energy, price guidance was scarce on offerings carried over from last week's volatile finish, as well as deals launched last week and scheduled to price this week, sources said.

Official talk has been heard on only one deal on the active calendar.

Late last week Warren Resources, Inc. talked its $300 million offering of eight-year senior notes (Caa1/B-) to yield in the 8¼% area.

The deal, via left bookrunner BMO, was scheduled to price on Friday. However, like the other four deals expected to price on Friday, it was moved back into the present week, sources said.

Quiet session seen

In the secondary market, activity was typically light for a summer Monday.

A trader called the session “fairly uneventful.”

He had been out for a few days last week and noted that upon his return, “you hear about all of this selling off, but I’m just not seeing it.”

If anything, he noted that the CDX index was up by ¾ of a point on Monday, “but I don’t know how much volume that was actually on.”

Among recently priced issues, he said that William Lyon Homes’ 7% notes due 2022 were trading in a 100 3/8 to 100 5/8 context, though with only $4 million traded.

“That’s surprising – you’d think there would be more volume,” he said.

The Newport Beach, Calif.-based homebuilder priced $300 million of the notes at par on very late in the day on Thursday via its WLH PNW Finance Corp. subsidiary, although the terms did not circulate in the market till Friday.

Before it priced, the deal – originally a two-part offering – had been restructured into a single-tranche transaction, with the elimination of a $50 million add-on to the company’s existing 5 ¾% notes due 2019.

Elsewhere, he said, about $6 million of CDW Corp. 6% notes due 2022 had changed hands in a 100½ to 101 context.

The Vernon Hills, Ill.-based computer hardware, software and information technology services provider had priced a quickly shopped $600 million of the notes at par on Thursday via its CDW LLC and CDW Finance Corp. subsidiaries.

NRG Yield’s 5 3/8% notes due 2024 traded at 100¾ point, which the trader called up ¼ of a point, with “a whopping [$100,000] traded.”

Again, he expressed some surprise that there wasn’t very much activity at all in the credit despite its respectably large $500 million size.

A second trader saw two sided markets at 100¾ bid, 101¼ offered, which he also called up ¼ of a point.

The Princeton, N.J.-based power generation company had priced that issue at par on Thursday via its NRG Yield Operating LLC subsidiary, after upsizing the offering from an originally announced $400 million. The bonds had traded around a 100½ to 101 context in initial aftermarket dealings.

Level 3 on the rebound

Last week’s biggest deal – also the biggest loser among the new or recently priced credits – was Level 3’s $1 billion of 5 3/8% notes due 2022, but on Monday, it looked as though the notes were trying to recoup some lost ground.

A trader saw the bonds up ¾ of a point, to 98 bid, 99 offered, while a second pegged the bonds at 98 bid, 98½ offered, also up ¾ of a point, on volume of about $13 million.

The Broomfield, Colo.-based fiber-optic telecom network operator’s drive-by megadeal had priced at par last Tuesday via the company’s Level 3 Escrow II, Inc. financing subsidiary, after it was upsized from an originally planned $600 million.

The bonds struggled from the get-go, dipping to around a 99¾ bid context in initial aftermarket dealings after pricing, on volume of more than $47 million.

The continued to erode as the week rolled on, finally bottoming at 97 bid on Friday, although one trader at that time did see them having bounced off their trading bottom. He quoted them going out around 97½ bid.

Consol, Mallinckrodt trade

Also among the recently priced names, a trader saw Consol Energy’s 5 7/8% notes due 2022 up by as much as ¾ of a point on Monday, finishing at 101¾ bid, 102¼ offered.

The Pittsburgh-based coal and natural gas company had brought a quickly shopped $250 million add-on to its existing bonds to market on Tuesday, pricing it at 102.75 to yield 5.308%. However, those bonds had slid down some 1 3/8 points on Thursday amid the general market downturn, finishing at 101½ bid, 102¼ offered, and continuing that retreat on Friday, when they ended off by ½ of a point at 101 bid, 101¾ offered.

A trader saw Dublin, Ireland pharmaceuticals manufacturer Mallinckrodt plc’s 5¾% notes due 2022 trading on Monday in a par to 100¼ context. It had priced $900 million of those notes on Wednesday at par via its Mallinckrodt International Finance SA and Mallinckrodt CB LLC subsidiaries.

The bonds had been seen around 100 1/8 to 100 3/8 on Thursday.

Active deals seen better

Among the most active issues, a trader saw Las Vegas-based gaming giant Caesars’ 9% notes due 2020 issued by its Caesars Operating Escrow, LLC, unit up ¼ of a point at 83¼ bid on over $15 million of turnover.

Dallas based hospital operator Tenet Healthcare’s 6% notes due 2020 issued by its TCH Escrow Corp. subsidiary were up 7/8 of a point at 105 3/8 bid, also on over $15 million of volume.

Overland Park, Kans.-based wireless provider Sprint Corp.’s Sprint Capital Corp. 6.9% notes due 2019 gained 1 point on the day, a trader said, ending at 107½ bid. More than $11 million of the notes changed hands.

Market indicators turn mixed

Statistical indicators of junk market performance were mixed on Monday, snapping a six-session losing streak that had seen those indicators down across the board.

The KDP High Yield Daily index lost 18 basis points – its seventh consecutive downturn – to close at 72.61, its low point for this year so far and the lowest the index has been since June 26, 2013, when it had closed at 72.35. That loss follows its plunges of 46 bps on Thursday and 52 bps on Friday.

The yield rose by 8 bps to 5.69%, its sixth straight widening. On Friday, it had ballooned out by 17 bps, after shooting up by 14 bps on Thursday.

But the Markit CDX Series 22 index jumped by 23/32 on Monday to end at 106 15/16 bid, 107 offered, snapping a string of two straight losses, including 3/8 of a point on Friday and a 29/32 nosedive on Thursday. It had been unchanged on Wednesday, but it had suffered four straight losses before that.

And the widely followed Merrill Lynch High Yield Master II index also turned higher, gaining 0.015% on Monday, its first advance after six straight losses, including Friday’s 0.537% swoon, which had followed Thursday’s even steeper 0.616% plunge.

Monday’s improvement lifted the index’s year-to-date return to 3.802% from Friday’s 3.683%, which had been its weakest finish since April 29, when it closed at 3.623%. However, it remained well down from the 5.751% return recorded on July 7, the peak level so far for 2014.

Among the other index components, its yield to worst backed off on Monday to 5.89% from Friday’s 5.936%, its high point for 2014.

The spread to worst versus comparable Treasuries likewise tightened slightly to 441 bps from Friday’s 444 bps, which tied the spread’s Feb. 4 reading for its widest point of the year so far.

The average bond price rose to 102.9768 from Friday’s 102.9156, its new low for the year.

© 2015 Prospect News.
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