Community Health vastly upsizes, adds tranche; Genesis loses steam; Rayonier trades up

By Paul A. Harris and Abigail W. Adams

Portland, Ore., Dec. 11 – The Dec. 7 week cleared more than $10 billion of deals in the high-yield market.

An eleventh-hour deal tipped the scales definitively as Community Health Systems, Inc. sold a tremendously upsized $2.8 billion two-part megadeal that played to blockbuster demand.

Meanwhile, the secondary space remained soft on Friday although volume was relatively light.

New paper remained in focus although the deals to price during Thursday’s session were trading off their highs.

While coming in from their heights, Rayonier A.M. Products Inc.’s 7 5/8% springing maturity senior notes (CCC+/B-) continued to trade with a large premium.

However, Genesis Energy, LP’s 8% senior notes due 2027 (B1/B+) dropped to a par-handle after a strong break the previous session.

While Genesis was losing steam, several distressed energy names remained well bid with crude oil futures largely flat.

Community Health and NFP

An active Friday session saw Community Health Systems, Inc. price a massively upsized $2.8 billion amount (from $1.05 billion) of senior secured notes (Caa2/B-/B) in a revised two-part drive-by.

The deal, which was heard to have played to $5 billion of demand, included a $1.9 billion tranche of notes due March 15, 2027 which priced at par to yield 5 5/8%. The 6.25-year notes came tight to talk in the 5¾% area.

In a tranche that was added to the deal subsequent to its early Friday announcement, Community Health also priced $900 million of eight-year notes at par to yield 6%, in the middle of talk in the 6% area.

Also NFP Corp. priced an upsized $300 million add-on (from $200 million) to its 6 7/8% senior notes due Aug. 15, 2028 (Caa2/CCC+) at 105, at the rich end of talk, in a Friday drive-by.

Canvassing market sources for forecasts on primary market activity in the Dec. 14 week turned up varying projections.

A syndicate banker said dealers would roll out an offering on Monday that would run a multiday roadshow, but declined to furnish an issuer name or a sector.

Beyond that the market should remain active at least into the later part of the week, as issuers are going to be motivated to take advantage of present rates, the official added.

One trader said that the Community Health Service deal (above) could be the last big deal of 2020, and looks for the Dec. 14 week to generate a comparatively subdued $4 billion to $5 billion of issuance, with the lights in the primary market possibly going out after Thursday, Dec. 17.

However another trader is looking for the Dec. 14 week to possibly clear the $10 billion mark, as it did in the week just concluded.

And it's not out of the question that the primary market could remain open into the early part of the Dec. 20 week, provided the tone remains supportive, and there are investors on hand, the trader said.

Rayonier in demand

Rayonier’s 7 5/8% senior notes with a springing maturity were in focus on Friday with the notes trading up to a 102-handle.

The 7 5/8% notes traded as high as 103 before settling to trade in the 102½ to 102¾ context heading into the market close, a source said.

The notes were active with more than $89 million in reported volume.

The deal was heavily oversubscribed with books as much as 7x the order size.

The notes carry a springing maturity, which increased their attractiveness, a source said.

They will mature on the earlier of either Jan. 15, 2026 or the springing maturity date of 91 days prior to the maturity of the chemical company’s 5½% senior notes due 2024 or 91 days prior to debt issues to refinance the 5½% notes.

Rayonier priced a $500 million issue of the 7 5/8% notes at par on Thursday.

Pricing came at the tight end of yield talk in the 7¾% area, which was deep inside of early guidance in the low 9% area.

Genesis weakens

Genesis Energy’s 8% senior notes due 2027 lost steam in active trading on Friday after a strong break the previous session.

The 8% notes dropped to a par-handle and were changing hands in the par ½ to par ¾ context heading into the market close, a source said.

There was more than $72 million of the bonds on the tape during Friday’s session.

The notes were down more than 1½ points after closing out the previous session on a 102-handle.

They were marked at 102 bid, 102½ offered on Thursday, which was a strong day for the energy sector.

Genesis Energy priced an upsized $750 million, from $550 million, issue of the 8% notes at par on Thursday.

Pricing came tighter than talk in the 8¼% area. Initial guidance was in the 8¾% area.

The deal was 6x to 7x oversubscribed, sources said.

Energy sector

While Genesis Energy was losing steam on Friday, several distressed energy names continued to catch a bid, albeit in light volume.

Transocean Ltd.’s 11½% senior notes due 2027 gained 2 points to close Friday at 71. The offshore drill operator’s 7½% senior notes due 2031 gained 1½ points to 33¾.

Antero Resources Corp.’s 5% senior notes due 2025 gained 2¼ points to close Friday at 87¾.

EnLink Midstream LLC’s 5.45% senior notes due 2047 gained 2½ points to 78½.

Gains in the distressed energy space continued despite a flat day for crude oil futures.

WTI crude oil futures settled at $46.26, a decrease of 22 cents or 0.47% on Friday after surging on Thursday.

“There’s been a real yield grab in distressed energy,” a source said.

Several names that are now trading in the 70s were trading in the 30s just a few months ago.

However, the energy sector remains the riskiest in high-yield space, sources said.

$69 million Thursday outflows

The dedicated high-yield bond funds had $69 million of net daily outflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $194 million of outflows on the day.

However actively managed high-yield funds had $125 million of inflows on Thursday, the source said.

News of Thursday's daily flows followed a Thursday report that the flows of the high yield funds were essentially flat for the week to Wednesday's close ($0.002 billion), according to the Refinitiv Lipper Fund Flow Report Newsline.

High-yield ETFs, which sustained $247 million of outflows during the week to Wednesday, sustained large withdrawals as the week progressed, according to the market source.

Indexes

Indexes closed Friday in the red although they were mixed on the week.

The KDP High Yield Daily index shaved off 6 points with the yield now 4.53%.

The index was down 3 points on Thursday after gaining 2 points on Wednesday, 2 points on Tuesday and 8 points on Monday.

The index posted a cumulative loss of 3 points on the week.

The ICE BofAML US High Yield index shaved off 3.4 bps with the year-to-date return now 5.166%.

The index inched up by 0.6 bps on Thursday, shaved off 4.2 bps on Wednesday after gaining 7.8 bps on Tuesday and 12 bps on Monday.

The index posted a cumulative gain of 12.8 bps on the week.

The CDX High Yield 30 index dropped 14 bps to close Friday at 108.84.

The index dropped 11 bps on Thursday, was up 15 bps on Wednesday, and was down 22 bps on Tuesday and 11 bps on Monday.

The index posted a cumulative loss of 43 bps on the week.

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