Energy Transfer Equity, EP Energy drive-bys, downsized Blue Coat price, Transocean, oils slide

By Paul A. Harris and Paul Deckelman

New York, May 19 – A pair of sizable energy sector drive-by deals set the pace for the high-yield primary arena on Tuesday, syndicate sources said, as Energy Transfer Equity, LP and EP Energy Corp. got transactions done.

Energy Transfer, a midstream oil and natural gas company, brought a quickly shopped $1 billion offering of 12-year notes to market, pricing them at a discount to par, while exploration and production operator EP Energy did an opportunistically timed $800 million of eight-year notes via a pair of wholly-owned subsidiaries.

Earlier in the session, cyber-security provider Blue Coat Holdings, Inc. priced a downsized $470 million of eight-year paper in a regularly scheduled deal off the forward calendar. That was the only deal appearing early enough in the session for any real aftermarket activity, with the notes moving up slightly in active trading.

The day’s $2.27 billion of new dollar-denominated, fully junk-rated bonds from a trio of domestic issuers represented a sharp pickup from Monday, when no such paper had priced, and from Friday, when $850 million had priced in two tranches, according to data compiled by Prospect News.

For a second consecutive session, one of those Friday deals – from a subsidiary of flashlight battery maker Energizer Holdings Inc. – was the most active Junkbondland credit, though the bonds continued to stick very close to their issue price.

Away from the new deals, energy names such as California Resources Corp. and Energy XXI Ltd. retreated, in line with a slide in world crude oil prices.

Also in the energy area, Transocean Ltd.’s bonds were off, along with its shares, after the maritime driller issued its latest fleet status report, reporting contract extensions on some of its vessels – but at lower-than-anticipated prices.

Statistical market performance indicators were lower across the board for a second consecutive session on Tuesday. They had lost ground on Monday after having been higher all around on Friday and mixed on Wednesday and Thursday.

Energy Transfer drives by

Following a generally quiet Monday in the primary market, the news pace picked up on Tuesday.

Three issuers – two coming with drive-bys – priced single-tranche deals, raising a combined total of $2.27 billion.

Energy Transfer Equity priced a $1 billion issue of 5½% 12-year senior notes (Ba2/BB/BB+) at 98.5 to yield 5.674%.

That yield was close to the low end of price talk that had been set at 5 5/8% to 5¾%.

The deal was announced earlier in Tuesday’s session at benchmark size.

Joint bookrunner Morgan Stanley will bill and deliver. Deutsche Bank was also a joint bookrunner.

The Dallas-based midstream oil and gas company plans to use the proceeds to repay bank debt and for general corporate purposes.

EP Energy prices tight

Elsewhere in Tuesday drive-by action, EP Energy priced an $800 million issue of eight-year senior notes (B1/B) at par to yield 6 3/8%.

The yield printed at the tight end of yield talk in the 6½% area.

RBC was the left bookrunner. Citigroup, Goldman Sachs and J.P. Morgan were the joint bookrunners.

The Houston-based independent oil and natural gas exploration and production company plans to use the proceeds to fund the repurchase or redemption of its 6 7/8% senior secured notes due 2019, and for general corporate purposes.

Blue Coat buyout deal prices

Blue Coat Holdings priced a downsized $470 million issue of eight-year senior notes (Caa2/CCC+) at par to yield 8 3/8%.

The yield printed in the middle of the 8¼% to 8½% yield talk.

Jefferies was the bookrunner.

Proceeds will be used to help fund the buyout of the Sunnyvale, Calif.-based cyber security company by Bain Capital LLC from Thoma Bravo LLC in an all-cash transaction valued at about $2.4 billion.

The offer was downsized from $570 million when Blue Coat shifted $100 million of the financing to its term loan, upsizing it to $1.15 billion from $1.05 billion.

Rexel roadshow

A recently dormant European primary market flickered to life on Tuesday.

Rexel SA began a two-day roadshow on Tuesday in London for a €500 million offering of seven-year senior notes (Ba3/BB/BB).

The deal roadshows in Paris on Wednesday and is set to price subsequently.

Credit Agricole, HSBC and SG are the joint global coordinators and joint lead bookrunners. BofA Merrill Lynch, CM-CIC, ING and JPMorgan are joint bookrunners.

The Paris-based provider of electrical services and equipment plans to use the proceeds to redeem its dollar-denominated 6 1/8% senior due December 2019, and for general corporate purposes.

Elsewhere in the European market, Medical Properties Trust, Inc. plans to begin a series of meetings with fixed income investors on May 26, ahead of a possible euro-denominated debt offer, pending market conditions.

The Birmingham, Ala.-based medical real estate investment trust has been assigned a Ba1 senior unsecured rating by Moody’s and a BBB- senior unsecured rating by Standard & Poor's.

The meetings are being arranged by Goldman Sachs, Credit Agricole and Credit Suisse.

Positive flows

Cash flows for dedicated high-yield funds were positive on Monday, the most recent session for which data was available at press time, according to a buyside source.

High yield ETFs saw $259 million of inflows on Monday, while actively managed funds saw $60 million of daily inflows.

Blue Coat trades near issue

In the secondary sphere, a trader said the new Blue Coat Holdings 8 3/8% notes due 2023 began trading in a 100¼ to 100¾ bid context, after the Sunnyvale, Calif.-based cyber security company’s downsized offering had priced at par.

He saw the bonds then tightening to around 100¼ to 100 3/8, with over $63 million having changed hands, making it one of the day’s busiest junk issues.

A second trader said the new issue traded into a 100¼ bid, and was left at 100¼ to 100½.

Yet another trader saw the bonds at 100 1/8 to 100 3/8.

Traders meantime did not report any dealings in the new Energy Transfer Equity 5½% notes due 2027 or the EP Energy 6 3/8% notes due 2023, both of which priced fairly late in the session.

However, news of the latter deal – which was done with EP Energy LLC’s wholly owned Everest Acquisition Finance Inc. subsidiary as co-issuer – helped push Everest’s existing 9 3/8% notes due 2020 up 3/8 point to 108½ bid on volume of more than $18 million.

Energizer again active

For a second straight session, a trader said, Energizer SpinCo Inc.’s 5½% notes due 2025 “seemed to be the volume leader, again – but they didn’t really move much.”

He pegged the bonds in a 100 1/8 to 100 3/8 bid context.

A secondary trader also located the notes there, while seeing a market-leading volume of more than $65 million.

At another desk, a trader said that the bonds were ending at 100 5/16 bid, down 3/16 point.

SpinCo, a wholly owned special-purpose subsidiary of St. Louis-based Energizer, priced $600 million of the notes at par on Friday as a regularly scheduled forward calendar offering, with the proceeds slated to be used to help fund the spinoff of the company’s household products operations, including its namesake battery business; that split will leave the soon-to-be-renamed parent company as a maker of personal-care products such as razor blades, shaving cream, feminine and infant-care products and sun tan lotion.

The bonds priced too late on the session Friday for any real aftermarket dealings, but made up for it with a vengeance on Monday, when over $83 million were changing hands, mostly in a range between 100¼ and 100½ bid.

Thursday deals again active

Apart from Energizer SpinCo, a trader saw CNO Financial Group Inc.’s 4½% notes due 2020 at 101 7/8 bid, unchanged on the day, with more than $12 million having traded.

A second trader saw the bonds at 101 7/8 bid, 102 3/8 offered, which he called up ¼ point on the day.

He saw the new 5¼% notes due 2025 at 101 7/8 bid, 102 3/8 offered, up 3/8 point on the day.

CNO, a Carmel, Ind.-based financial services company, priced $325 million of the 4½% notes and $500 million of the 5¼% notes on Thursday at par, after the regularly scheduled forward calendar offering had been upsized to $825 million from an originally shopped $800 million.

Another Thursday deal, Ally Financial Inc.’s 3.6% notes due 2018, were seen down ¼ point on Tuesday, at par bid, 100½ offered. Its new 4 5/8% notes due 2022, were unchanged at 99½ bid, par offered.

Ally, a Detroit-based online banking company and auto lender – successor to the old GMAC – priced the bonds as part of a quick-to-market $1.4 billion two-part issue.

That deal consisted of $1 billion of the 3.6% notes, which priced at 98.437 to yield 3.8%, and $400 million of the 4 5/8% notes, which priced at 98.387 to yield 4.9%.

Thursday’s treasure trove of $5.9 billion of new bonds from seven issues, split into nine tranches, have been a major feature of the junk secondary market over the past four session, with many of the deals racking up active volume.

“There were just too many issues,” a trader said. “It was like – crazy.”

Oil names trade off

Away from the new deals, a trader said that energy names were mostly lower, in line with a slide in crude oil prices.

For instance, he saw California Resources’ 6% notes due 2024 – a fairly reliable proxy for the sector as a whole – “pretty active and down 1½ points, with the more than $2 downward move in oil.” The U.S. benchmark grade West Texas Intermediate crude lost $2.17 on Tuesday, or 3.65%, ending at $57.26.

A trader at another desk saw the Los Angeles based energy E&P credit down 1 3/8 point, ending at 92 3/8 bid, with more than $24 million having traded.

Another familiar oil name – Houston-based Energy XXI – was likewise lower, its 8¼% notes due 2018 sliding more than 2½ points to just under 69 bid on volume of over $16 million.

Transocean trades off

Marine energy driller Transocean’s bonds were on the slide, after the Swiss company put out its latest operational update, showing a $52 million increase in its contract backlog – but with the new daily leasing rate for most of its rigs down substantially from current levels due to weakness in the overall energy drilling business.

RIG’s 6½% notes due 2020 were seen down more than ½ point, at 95 5/8 bid, while its 6 3/8% notes due 2021were around ¼ point lower at 93 7/8, with over $17 million of volume in each.

The company’s New York Stock Exchange-traded shares fell by $1.18, or 5.86%, on the session, ending at $18.97. Volume of over 18 million shares was 1½ times the norm.

Indicators stay lower

Statistical market performance indicators were lower across the board for a second consecutive session on Tuesday. They had lost ground on Monday after having been higher all around on Friday and mixed on Wednesday and Thursday.

The KDP High Yield Daily Index lost 4 basis points Tuesday to end at 71.42, after having dipped by 2 bps on Monday. It had gained 5 bps on Friday. Tuesday’s downturn was its third loss in the previous four sessions and its fourth loss in the last six trading days.

Its yield, meantime, was up by 1 bp on Tuesday to 5.25% after having been unchanged on Monday for the second time in three sessions. It had come in by 2 bps on Friday.

The Markit Series 24 CDX North American High Yield eased by 1/32 point on Tuesday to close at 107 bid, 107 1/32 offered. It had also retreated by 3/16 point on Monday, after having risen the two previous sessions, including Friday’s 7/32 point gain.

The Merrill Lynch North American Master II high yield index ended lower for a second straight day. It was down by 0.06%, on the heels of Monday’s 0.024% loss, which had broken a three-session winning streak, including Friday’s 0.127% improvement.

Tuesday’s setback cut its year-to-date return to 3.823% from 3.886% on Monday. It was also down from its peak level for the year of 3.952%, set on April 27.

© 2015 Prospect News.
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