Morning Commentary: Lamar, Transocean prep Wednesday drive-bys; Tuesday deals active

By Paul A. Harris

Portland, Ore., Jan. 23 – The drive-by market lit back up on Wednesday, trailing Tuesday’s $4.15 billion all-drive-by session, the biggest burst of daily issuance the market had seen since Sept. 18.

On Wednesday's bill of fare, Transocean Poseidon Ltd. plans to price a $550 million offering of eight-year senior secured notes (current ratings B1/B+).

Price talk has the deal coming at 99 to yield in the 7% area, tight to initial guidance, which had the bonds pricing in the 99 area to yield 7% to 7¼%.

Morgan Stanley & Co. LLC, Wells Fargo Securities LLC, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, DNB Markets and Credit Agricole CIB are the joint bookrunners for the project financing.

Also, Lamar Advertising Co. plans to price a $250 million add-on to its 5¾% senior notes due Feb. 1, 2026 (Ba2/BB).

The existing bonds were trading Wednesday morning at 103.75, according to a trader, who expects the tap to come at a discount to that price.

J.P. Morgan Securities LLC is leading the bank debt refinancing.

Tight pricings

At least three of Tuesday's four drive-by deals traded Wednesday morning in a manner characteristic of bonds priced on the tights, a New York-based trader commented.

The new Tenet Healthcare Corp. 6¼% senior secured second-lien notes due February 2027 traded at par on Wednesday morning, right where the $1.5 billion issue priced on Tuesday, having doubled in size, whereupon it printed at the tight end of talk in the 6 3/8% area and far inside of initial guidance in the 6¾% area.

Trading in the new Tenet 6¼% notes was very active on Wednesday morning, the trader remarked.

There was also brisk trading Wednesday morning in the new Vistra Energy Corp. 5 5/8% senior notes due February 2027 (Ba3/BB), the trader said.

Those bonds were par bid, par 1/16 offered at mid-morning Wednesday after pricing at par on Tuesday in an upsized $1.3 billion (from $700 million) issue, in the middle of final talk, and tight to early guidance in the 5¾% area.

Also hugging its issue price were the new Albertsons Cos., Inc. 7½% senior notes due March 2026 (B3/B+) at par bid, par 1/8 offered at mid-morning Wednesday after pricing at par in an upsized $600 million (from $500 million) issue on Tuesday, tight to the 7½% to 7¾% talk.

The reason(s) for these underwhelming performances appeared to have more to do with issuers and dealers taking advantage of pent-up demand, and thus pricing the deals tight, than it did with Wednesday market conditions, said the New York-based trader, who was marking junk down 1/8 point in the early going on Wednesday.

PG&E – more selling

The $5.5 billion of debtor-in-possession financing that Pacific Gas & Electric Co., and its parent PG&E Corp., put in place Tuesday failed to stop the bleeding in its bonds, the trader said on Wednesday.

The PG&E 6.05% bonds due 2034, the most active issue, was down a point at 82 bid, 82½ offered on Wednesday morning.

Volume has slackened from the brisk pace at which the bonds were trading nearer the bankruptcy filing, the trader remarked.

Although the DIP financing is ostensibly good news, investors may fear the cash burn in store as the company wends its way through the two-year bankruptcy procedure it faces, where California wildfire liabilities could run to a staggering $30 billion, or more, the source commented.

Also, word in the market that real money accounts that have been holding onto a certain amount of the paper in investment-grade bond portfolios have lately undertaken purposeful selling, might factor into the downward move, the trader said.

Much of the activity in the San Francisco-based power generator’s distressed bonds, up until this point, has involved trading among hedge funds, the source said, and added that the manner in which PG&E's bonds have “whipped around” suggests that a number of those hedge funds got into the name too early.

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