Ensign Drilling, Forestar price; Staples eyed; Enlink, NGL trade up; Rackspace gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 5 – The domestic high-yield primary market rounded out an active week with $1.05 billion pricing over two deals.

Ensign Drilling Inc. priced a $700 million issue of five-year senior notes (B2/BB-) at par to yield 9¼% on Friday.

Forestar Group Inc. priced an upsized $350 million issue of five-year senior notes (B2/B) at par to yield 8%.

However, all eyes are on the week ahead when Staples Inc. is expected to price its $2.13 billion two-tranche senior notes offering.

While the secured tranche was heard to be oversubscribed, there was still work to be done on the unsecured tranche, which is looking like it will price at the wide end of talk.

Meanwhile, the secondary space closed out the week on firm footing with the tone of the market good following the release of positive economic data on Friday, a market source said.

Focus remained on the new deals with EnLink Midstream, LLC’s new 5 3/8% senior notes due 2029 (Ba1/BB+/BBB-) and NGL Energy Partners LP’s new 7½% senior notes due 2026 (B2/B+/B) seen as major volume movers.

While both were trading at a premium to their issue price, NGL Energy outperformed to trade more than 1½ points above issue.

Outside of the new paper, Rackspace Hosting Inc.’s 8 5/8% senior notes due 2024 jumped in active trading on Friday.

Ensign Drilling prices

Ensign Drilling priced a $700 million issue of five-year senior notes (B2/BB-) at par to yield 9¼% on Friday.

The yield printed at the wide end of the 9% to 9¼% yield talk.

BMO Capital Markets Corp. was the left physical bookrunner for the debt refinancing deal.

Forestar upsizes

Forestar Group priced an upsized $350 million issue of five-year senior notes (B2/B) at par to yield 8% on Friday.

The issue size increased from $300 million.

The yield printed at the wide end of the 7¾% to 8% yield talk and in the middle of initial guidance in the 8% area.

Deal timing accelerated. When launched, Forestar's offer was expected to remain in the market into the April 8 week.

JP Morgan Securities LLC, Citigroup Global Markets Inc., Mizuho Securities USA Inc., TD Securities (USA) Inc. and Wells Fargo Securities LLC were the joint bookrunners.

The Austin, Texas-based land developer, which is 75% owned by D.R. Horton, Inc., plans to use the proceeds for general corporate purposes including land acquisition and development and debt repayment.

Both Ensign Drilling and Forestar underwent covenant changes.

Forestar’s 8% notes skyrocketed soon after breaking for trade. The notes were seen trading up to 102 3/8.

More than $24 million of the bonds were on the tape by the late afternoon.

The week ahead

As soon as the table was set for the Friday session, discussion turned to Staples’ $2,125,000,000 two-part bond deal, set to price in the April 8 week, and a $3.2 billion term loan.

Of those three pieces, the $750 million tranche of seven-year senior secured notes (B1/B+) is in the best shape, sources say.

The order book for the secured notes was about 2.5 times oversubscribed at the 7½% to 7¾% guidance area, an investor said.

Some of the loan proceeds are expected to be shifted to the secured bonds, according to the investor, who is active in both the junk bond and leveraged loan markets.

The $1,375,000,000 of eight-year senior unsecured notes were about half done on Friday morning, sources said.

Talk on the unsecured bonds is heard to have pushed well into the tens, sources say. Initial guidance was in the high 9% to low 10% area.

The investor, specifying that talk on the unsecured paper remains 10%, said there is a lot of misinformation being thrown around by people trying to get the market on the deal wider.

This source, who agreed to speak on background, expects people to pile into the unsecured paper if, as expected, it comes with a double-digit coupon.

Commitments on the term loan were due Friday.

All in all, the bond deal's in good shape and should have no problem pricing in the week ahead, albeit with covenant changes, sources said.

Sailing for the bond deal should have been much smoother than it has been, given the overall lack of a new issue calendar, the investor exclaimed, noting the market's apparent sluggishness with respect to the unsecured notes.

There's a dividend payment among the uses of proceeds, the investor conceded, noting that bond investors don't care much for putting their money on the table, only to see their counterparts on the equity side pick that money up and put some of it in their pockets.

Also, right now the market definitely wants secured paper, the investor noted.

That could change, however, the source advised.

With Friday's robust non-farm payroll number, and a tame central bank, the United States appears to be on more solid economic footing than seemed to be the case a month ago, the investor said, adding that a more positive outlook on the economy should help to erode risk aversion in the high yield primary market.

EnLink trades up

EnLink Midstream’s 5 3/8% senior notes due 2029 were trading at a premium to their issue price in active trading on Friday.

The 5 3/8% notes were quoted at par 5/8 bid, par 7/8 offered early in the session, according to one market source.

The notes were seen changing hands around par ½ to par ¾ in the late afternoon with some trades as high as par 5/8, another source said.

More than $34 million of the bonds were on the tape by the late afternoon.

EnLink Midstream priced a $500 million issue of the 5 3/8% senior notes at par in a Thursday drive-by.

The yield printed at the tight end of yield talk in the 5½% area. Initial guidance was in the 5½% to 5¾% area.

NGL Energy jumps

NGL Energy’s 7½% senior notes due 2026 jumped in active trading with the notes more than 1 point above their issue price.

The 7½% notes were seen at par ½ bid, 101 offered early in the session, according to a market source.

They rose as the session progressed and were seen trading between 101½ to 101¾, a market source said.

About $36 million of the bonds were on the tape by the late afternoon.

Pent up demand for new paper, the high coupon and a strong day for crude oil futures helped buoy demand for the notes.

NGL Energy Partners priced a $450 million issue of the 7½% notes at par on Thursday.

The yield printed in the middle of yield talk in the 7½% area and tight to early guidance in the mid-to-high 7% area.

Rackspace jumps

Rackspace’s 8 5/8% senior notes due 2024 jumped in active trading on Friday.

The 8 5/8% notes rose about 2 points. They were changing hands around 93¼ in the late afternoon, according to a market source.

More than $18 million of the bonds were on the tape by the late afternoon.

Rackspace recently appointed former investment banker Jesse Burros as senior vice president of corporate development where he will lead the company’s merger and acquisitions activity.

Burros previously worked for BMO Capital Markets where he launched the cloud services banking practice.

Prior to joining Rackspace, he served as an advisor to the cloud computing company on its acquisition of TriCore Solutions and helped finance its acquisition of Datapipe, according to a company news release.

Mixed Thursday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, according to a trader.

High-yield ETFs sustained $30 million of outflows on the day.

However actively managed high-yield funds saw $30 million of inflows on Thursday, the trader said.

News of Thursday's daily flows trails a Thursday afternoon report that the combined high-yield funds saw $2 billion of net inflows in the week to Wednesday's close, according to Lipper US Fund Flows.

Indexes gain

Indexes closed out a mixed week with gains on Friday and cumulative gains on the week.

The KDP High Yield Daily index rose 3 bps to close Friday at 70.36 although the yield remained flat at 5.79%.

The index dropped 2 bps on Thursday but gained 4 bps on Wednesday, 2 bps on Tuesday and 14 bps on Monday.

The index saw cumulative gains of 21 bps on the week.

The ICE BofAML US High Yield index was brushing up against 8% returns on Friday after only recently surpassing the 7% threshold on March 26 after passing 6% year-to-date returns on March 11.

The index rose 16.9 bps with the year-to-date return now 7.961%.

The index was up 1.6 bps on Thursday, 14 bps on Wednesday, 3.6 bps on Tuesday and 22 bps on Monday.

The index saw a cumulative gain of 58.1 bps on the week.

The CDX High Yield 30 index rose 11 bps to close Friday at 107.01.

The index was up 8 bps on Thursday, dropped 1 bp on Wednesday and 17 bps on Tuesday after a 35 bps gain on Monday.

The index saw cumulative gains of 36 bps on the week.

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