Tenet prices megadeal, outstanding notes rise on redemption; Tesla, EQT gain

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 1 – The domestic high-yield primary market continued to surprise market players by rolling out a drive-by megadeal on Tuesday.

Tenet Healthcare Corp. priced a $2.5 billion issue of eight-year senior notes (Caa1/CCC+/B) with proceeds to be used to redeem Tenet’s 8 1/8% senior notes due 2022.

Tenet’s 8 1/8% senior notes were in focus in the secondary space with the notes making large gains following news of the redemption.

While trading volumes remained muted on Tuesday, it was a strong day for the secondary space.

While Tenet dominated the market’s attention, Tesla Inc.’s 5.3% senior notes due 2025 were also active with the notes improving after the company announced a new equity offering.

EQT Corp.’s 8¾% senior notes due 2030 were also on the rise.

Tenet’s drive-by

If the new issue market was to remain shuttered until after Labor Day, as market sources began forecasting almost a week ago, someone forgot to get the memo to Barclays.

Barclays had the left on Tenet Healthcare's $2.5 billion drive-by issue of 6 1/8% eight-year senior notes (Caa1/CCC+/B) that priced Tuesday in the middle of talk.

Notwithstanding the fact that a broad swath of the market is on vacation until after Labor Day, there was no problem building a book, according to a trader who heard that there was $4 billion of orders as of noon ET, and suggested there was likely a decent amount of reverse inquiry at play in the deal.

Barclays is also on the left for the Spirit Airlines, Inc. $600 million offering of five-year first-lien senior secured notes (Ba3//BB+), a deal backed by the airline's frequent flyer program.

Official talk has the notes coming at a discount with an all-in yield of 8¼% to 8½% - at the tight end of early guidance in the 8¾% area – and pricing on Wednesday morning.

Fifty percent of the Spirit Airlines deal is done in reverse inquiry, according to traders, one of whom advised on Tuesday that the deal could upsize to $750 million, or even $800 million.

Among the Covid-wracked passenger air carriers, United Airlines, Inc. led the charge into the high-yield new issue market in late June with its $3.8 billion issue of 6½% seven-year secured paper backed by a first-priority lien on the assets of its Mileage Plus Intellectual Property Assets Ltd.

And Delta Air Lines, Inc. is expected make a similar approach, post-Labor Day, with a first-lien bond deal backed by its SkyMiles frequent flyer program, sources say.

Tenet gains

Tenet’s 8 1/8% senior notes due 2022 were in focus and making large gains on Tuesday after the company announced the notes would be redeemed.

The notes jumped more than 3 points and were marked at 111 bid, 111 3/8 offered heading into the market close, a source said.

There was more than $31.5 million in reported volume during the session.

The notes were trading up to their takeout value, a source said, with proceeds from Tenet’s megadeal to be used to redeem the notes.

Tesla improves

Tesla’s 5.3% senior notes due 2025 improved in active trading on Tuesday after the company announced it would sell up to $5 billion in stock.

The 5.3% notes gained about ½ point to close Tuesday at 104½, according to a market source.

There was more than $17 million on the tape heading into the market close.

The notes were active and posting gains after the electric car manufacturer announced it would sell up to $5 billion in stock over time at market prices.

Tesla’s announced stock sale comes on the heels of its 5-for-1 stock split on Monday.

Tesla also recently announced that it was extending its $1.1 billion vehicle lease warehouse agreement with Deutsche Bank for another year, a source said.

The once struggling company has seen a dramatic turn of fortunes in recent months with its capital structure exploding.

The 5.3% senior notes were changing hands in the low 80s in March but have steadily gained since.

They closed out last week on a 103-handle, a source said.

EQT on the rise

EQT’s 8¾% senior notes due 2030 were posting gains in active trading on Tuesday.

The notes were up 3¼ points to close the day at 124, according to a market source.

EQT’s 7 7/8% senior notes due 2025 were not active on Tuesday with the notes closing the day little changed at 114.375 bid.

EQT’s 2030 and 2025 notes were originally issued in January at par with coupons of 7% and 6 1/8% respectively.

However, the coupons of the notes were subject to a step-up clause in the event of a ratings downgrade from Moody’s, S&P or Fitch, a source said.

The notes currently carry ratings of Ba3/BB-/BB. The notes were rated Ba1/BBB-/BBB- when they priced.

Indexes gain

Indexes were on the rise on Tuesday after a mixed start to the week.

The KDP High Yield Daily index was up 6 basis points to close the day at 67.29 with the yield 5.26%. The index shaved off 2 bps on Monday.

The ICE BofAML US High Yield index was up 12 bps with the year-to-date return now 0.874%.

The index gained 5.8 bps on Monday.

The CDX High Yield 30 index jumped 64 bps to close Tuesday at 106.36.

The index was up 10 bps on Monday.

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