Hilcorp drives by; junk rally continues, closes week with strong gains; GrafTech tumbles

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 3 – The lights came up in the junk bond new issue market for a drive-by deal on Friday.

Hilcorp priced an upsized $600 million issue (from $500 million) of Hilcorp Energy I, LP and Hilcorp Finance Co. 10-year senior secured notes (Ba2/BB+).

With the market once again hot, sources expect a busy week ahead for primary market activity with a handful of already telegraphed deals expected to appear.

Meanwhile, the buy-a-thon continued in the secondary space as Treasury yields tumbled with the latest U.S. nonfarm payrolls report further fueling market expectations for an end to rate hikes.

The 10-year Treasury yield continued to plunge and was down another 14 basis points to close Friday at 4.521% after hovering at 4.9% on Wednesday in the run up to the Federal Reserve’s announcement.

The October nonfarm payrolls report reflected a cooling in the labor market with job and wage growth decelerating and unemployment ticking higher.

The cash bond market added another 5/8 to 7/8 point after Thursday’s blockbuster gains with the market eliminating its October losses.

“It keeps going up,” a source said.

Navient Corp.’s 11½% senior notes due 2031 (Ba3/B+/BB-) continued their upward momentum with the notes adding another 1 point in active trade.

The notes rank as one the best performing new deals of 2023 with the gains made just days after pricing.

GTCR W-2 Merger Sub LLC’s 7½% senior secured notes due 2031 (Ba3/BB/BBB-) backing the buyout of Worldpay traded to a new a high on Friday after hitting a new low just one week ago.

While buyers continued to flood the market, certain credits remained under pressure with those reporting disappointing earnings continuing “to get punished,” a source said.

GrafTech Global Enterprises Inc.’s senior notes (B1/BB) were the largest losers of Friday’s session with the notes down 3 to 7 points after an earnings miss.

Hilcorp drives by

On Friday, Hilcorp priced an upsized $600 million issue (from $500 million) of Hilcorp Energy I, LP and Hilcorp Finance Co. 10-year senior secured notes (Ba2/BB+) at par to yield 8 3/8%.

The yield printed at the tight end of the 8 3/8% to 8 5/8% yield talk, and half a point below the wide end of initial guidance in the 8¾% area.

Sources pressed on Friday for new issue color for the week ahead paraded a list of names telegraphed earlier in the Halloween week.

Possible names include Veritiv Corp., with $600 million of bonds to support the leveraged buyout by Clayton, Dubilier & Rice LLC, a deal expected to be led by Goldman Sachs.

Also, EG Group is heard to be in the wings with senior secured notes, including some dollar-denominated notes, as part of a $2 billion equivalent debt refinancing.

And Ineos Quattro is also heard to be in the staging area with €800 million equivalent of dollar- and euro-denominated secured notes, part of a debt refinancing and acquisition funding effort.

Meanwhile, eulogizers of the hard-traveled Global Aircraft Leasing Co., Ltd./Global Sea Containers II Ltd. $1.95 billion offering of five-year senior PIK toggle notes (Ba2//BB-) may yet be premature, a trader asserted on Friday.

The co-issuers are in the market to raise cash to pay off $1.911 billion of Global Aircraft 6½% senior PIK toggle notes due September 2024.

On Thursday those 2024 notes traded 1 point to 2 points higher after Dublin-based aircraft leasing company Avolon reported an 8% increase in lease revenue, on its Thursday earnings call.

Global Aircraft is an indirect, wholly owned subsidiary of Bohai Leasing Co., Ltd. which owns 70% of the Avolon Holding Ltd. outstanding shares (Bohai’s sole asset).

The move in the Global Aircraft 2024 bonds, following the Avolon earnings call, suggests that Global Aircraft’s proposed junk bond deal is still on the table, the trader said.

Navient outperforms

Moving to the secondary, Navient’s recently priced 11½% senior notes due 2031 has already joined the ranks of the top five best performing deals of 2023.

The 11½% notes continued their strong upward momentum on Friday with the notes adding another 1 point.

They were trading in the 104¾ to 105 context on Friday with the yield falling to 10¼%, a source said.

There was $12.5 million in reported volume.

The performance of the notes reflected the dramatic shift in market conditions between the time of pricing on Tuesday and Friday.

Navient priced a $500 million issue of the 11½% notes at 99.81 to yield 11½% in a Tuesday drive-by.

Worldpay

Worldpay’s 7½% senior secured notes due 2031 eliminated all losses from October and traded up to a new high on Friday.

The 7½% notes gained another ½ point after a more than 1 point gain the previous session.

The notes traded up to the 101 3/8 to 101 5/8 context in heavy volume, a source said.

It was the highest trading level for the notes since the $2.175 billion tranche priced at par in late September.

There was $15 million in reported volume.

Worldpay’s new height comes just one week after the tranche set a new low with the notes trading down to 97¾ last week as markets priced themselves for future rate increases.

GrafTech’s earnings

While buyers swarmed the broader high-yield market, GrafTech’s senior notes had heavy selling pressure on the heels of disappointing earnings.

The graphite electrode manufacturer’s 9 7/8% senior notes due 2028 sank 7 points in heavy volume.

The notes were trading in the 81¾ to 82¼ context heading into the market close with the yield rising to 15%, a source said.

There was $42 million in reported volume.

GrafTech’s 4 5/8% senior notes due 2028 sank 3 points to close the day in the 68¾ to 69¼ context.

The yield climbed to 13 1/8%.

GrafTech had a large revenue miss with a projected slowdown in demand sparking heavy selling in the name.

While buyers were returning to the high-yield market, companies that disappointed with earnings continued to get pummeled with investors keeping a close eye on fundamentals, a source said.

Fund flows

High-yield ETFs had a huge $1.265 billion daily cash inflow on Thursday, their sixth-largest inflow of the year, and the largest since the $1.524 billion inflow of July 12, according to a trader.

Meanwhile actively managed high-yield funds sustained $171 million of daily outflows on Thursday, a market source said.

News of Thursday’s daily flows follows a Thursday afternoon report that the combined funds sustained $953 million of net outflows in the week to the Wednesday, Nov. 1 close, the market source added.

That was the eighth consecutive weekly outflow, totaling $11.9 billion, the source calculated.

That left year-to-date cash flows of the dedicated junk bond funds at negative-$23.2 billion, according to the market source.

Indexes

The KDP High Yield Daily index added another 34 bps to close Friday at 48.82 with the yield 7.83%.

The index gained 39 bps on Thursday, 11 bps on Wednesday and 3 bps on Tuesday after shaving off 5 bps on Monday.

The index posted a weekly gain of 82 bps.

The ICE BofAML US High Yield index jumped another 92.8 bps with the year-to-date return now 7.169%.

The index surged 125.1 bps on Thursday and added 32.8 bps on Wednesday after falling 30 bps on Tuesday and 3.5 bps on Monday.

The index posted a weekly gain of 217.2 bps.

The CDX High Yield 30 index gained 24 bps to close Friday at 100.9.

The index jumped 72 bps on Thursday, 61 bps on Wednesday and 24 bps Tuesday.

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