Oldcastle on deck; secondary closes volatile week on soft footing; Earthstone Energy at a premium

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 8 – The primary market rested on its oars on Friday following its biggest week since January with eight issuers raising a total of $4.9 billion.

While the primary market was quiet on Friday, one deal remains on the active calendar.

Oldcastle BuildingEnvelope (Oscar AcquisitionCo LLC) is marketing a $985 million two-part leveraged buyout deal in a roadshow set to run through Wednesday.

The coming week is also expected to be an active one for new deal activity.

Meanwhile, the secondary space closed another volatile week on soft footing with the rally on Monday followed by four consecutive days of selling pressure.

Despite two weeks of inflows, ETFs remained the primary sellers driving down the market.

“Funny that we saw two straight weeks of inflows into the asset class after bleeding out to start the year,” a source said. “But that still hasn’t solved the equation.”

The market was particularly weak early in the session with less liquid, low quality names down as much as 1½ points but calmed in the afternoon.

The volatility in Treasuries has been the main driver of selling pressure in the space throughout the week, a source said.

Despite the heaviness in the market, Earthstone Energy Holdings, LLC’s recently priced 8% senior notes due 2027 (B3/B+/B+) were trading with a solid premium in high-volume activity.

However, Clydesdale Acquisition Holdings, Inc.’s (Novolex) 8¾% senior notes due 2030 (Caa2/CCC+) continued to trend down with the notes giving back their gains to trade several points below their discounted issue price.

Outside of recent issues, PennyMac Financial Services Inc.’s 5¾% senior notes due 2031 (Ba3/BB-) were among the largest losers of Friday’s session with the notes falling more than 2 points in active trading.

BB paper was underperforming CCC paper on a relative basis, a source said. However, both areas of the market were weak amid the move in Treasuries.

On deck

After a 10-tranche, high-volume week, the Friday session finished with just one deal on the active forward calendar.

Oldcastle BuildingEnvelope (Oscar AcquisitionCo LLC) is marketing a $985 million two-part buyout deal: a $400 million tranche of seven-year senior secured notes (B1/B) with initial talk in the mid-to-high 6% area and a $585 million tranche of eight-year senior unsecured notes (Caa1/CCC+) with initial talk in the mid-to-high 9% area, on a roadshow set to run through Wednesday.

Away from that there are no transactions being telegraphed specifically as business for the April 11 week, sources said.

However, it should be a decent-or-better week in the new issue market, a trader remarked, warning that one mitigating factor could be the onset of school vacations in parts of the New York area.

Earthstone holds

Earthstone Energy’s 8% senior notes due April 2027 maintained a healthy premium in the secondary space despite a heavy day for the market.

The 8% senior notes were marked at par 5/8 bid, par 7/8 offered heading into the close, according to a market source.

The paper traded as high as 101 early in the session.

There was $40 million in reported volume with the notes the most actively traded issue during Friday’s session.

In a heavily oversubscribed offering, Earthstone priced a $550 million issue of the 8% senior notes at par on Thursday.

The yield printed at the tight end of the 8% to 8¼% yield talk

The deal was heard to be as much as 4x oversubscribed.

The short duration of the notes, hefty coupon and recent outperformance of the energy sector drove the interest in the offering and the secondary performance of the notes, a source said.

Earthstone is an oil and gas exploration and production company.

Novolex unsecureds fall

Novolex’s unsecured tranche was hard hit by the sell-off over the past few sessions with the notes giving back their gains and trading firmly below their deeply discounted issue price.

While volume was light, the 8¾% senior notes due 2030 fell about 2 points on Friday to close the day at 91 7/8.

They traded down 1 point on Thursday to a 93-handle.

The 8¾% notes traded up to a 95-handle on Tuesday.

Novolex priced a $1.11 billion tranche of the 8¾% notes at 93.87 to yield 9 7/8% on March 30.

While Novolex’s unsecured tranche was under water at Friday’s close, the 6 5/8% senior secured sustainability-linked notes due 2029 (B2/B) maintained a premium and were marked at par 7/8 bid, 101¼ offered on Friday.

While the notes have maintained a premium, they were down from their peak with the notes trading as high as 102 on Monday.

Novolex’s $500 million tranche of the 6 5/8% notes priced at par on March 30 with proceeds funding Apollo Global’s buyout of the company.

PennyMac under pressure

PennyMac’s 5¾% senior notes due 2031 were under pressure during Friday’s session.

The notes fell more than 2 points to an 83-handle.

They were changing hands in the 83¼ to 83¾ context throughout Friday’s session.

The yield on the notes was running at 8.3%.

There was $9 million in reported volume.

The residential mortgage services company’s already struggling notes were under further pressure as 30-year mortgage rates rose above 5% on Friday.

Moody’s Investors Service revised its outlook on PennyMac to negative from stable in early March due to challenging operating conditions that will pressure the company’s profitability with dividend payments expected to outpace income over the next one to one-and-a-half years, Prospect News previously reported.

$774 million Thursday outflows

The dedicated high-yield bond funds sustained $774 million of net outflows on Thursday, according to a market source.

High-yield ETFs saw $689 million of outflows on the day.

Actively managed high-yield funds sustained $85 million of outflows on Thursday, the source said.

News of Thursday's cash flows comes on the heels of a Thursday report that the combined funds saw $296 million of net inflows in the week to the Wednesday, April 6 close, according to Refinitiv Lipper.

It was the second consecutive weekly inflow (the previous week saw $1.24 billion of inflows) following an 11-week run of consecutive outflows totaling $24.9 billion, or 9% of assets under management, the market source said.

Factoring funds that report to Lipper on a monthly basis, as well as those that report on a weekly basis, total outflows for March were $6.1 billion, the source said.

Total outflows for February were $9.6 billion, while January saw $10.8 billion of outflows.

Indexes

The KDP High Yield Daily index was down 26 points to close Friday at 60.3 with the yield now 5.8%.

The index fell 19 points on Thursday, 42 points on Wednesday and 20 points on Tuesday after climbing 13 points on Monday.

The index posted a cumulative loss of 94 bps on the week.

The CDX High Yield 30 index was down 56 bps to close Friday at 104.27.

The index fell 14 bps on Thursday, 40 bps on Wednesday and 60 bps on Tuesday after climbing 52 bps on Monday.

The index posted a cumulative loss of 118 bps on the week.

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