Morning Commentary: New deal market zooms into early August, Sanchez clobbered

By Paul A. Harris

Portland, Ore., Aug. 7 – The high-yield new issue market, which slumbered through much of July, came roaring into August, which has seen a reactivation of the drive-by deal market as well as the roadshow calendar.

Tuesday’s session features a pair of drive-bys.

Vistra Energy Corp. plans to price an $800 million offering of eight-year senior notes (expected ratings Ba3/BB/BB).

Initial talk has the deal yielding in the high 5% area, a trader said.

Citigroup is the lead bookrunner for the deal to refinance Dynegy bond debt.

Also Matador Resources Co. plans to price a $700 million offering of eight-year senior notes (existing ratings B2/BB-) in a quick-to-market trade on Tuesday.

Initial guidance has the deal coming with a yield in the low 6% area.

BofA Merrill Lynch, Scotia, SunTrust, Wells Fargo, BMO and RBC are the joint bookrunners.

The notes come with three years of call protection.

The Dallas-based energy exploration and production company plans to use the proceeds to fund a tender offer for its 6 7/8% senior notes due 2023 and for general working capital needs.

Also on deck for Tuesday is ACI Worldwide, Inc. with $300 million of eight-year senior notes. Initial price talk has the deal – which was scheduled to be shopped on a Monday investor call – coming to yield in the high 5% area to 6%.

Meanwhile BMC Software is getting pushback on the 9¾% area initial talk on the dollar-denominated tranche of its $1,825,000,000 equivalent two-part offering of senior notes (Caa2/CCC+), sources say.

Document changes are possible, according to an investor who passed on the bridge and is likewise taking a flyer on the bonds.

The deal also features a euro-denominated tranche.

Sizes remain to be announced.

The BMC roadshow is scheduled to wrap up on Wednesday.

There was one new roadshow announcement on Tuesday.

Frontdoor, Inc. began a roadshow on Tuesday for a $350 million offering of eight-year senior notes, set to price in the early part of the Aug. 13 week.

Frontdoor, a wholly owned subsidiary of ServiceMaster Global Holdings, Inc., plans to use the proceeds to refinance debt in connection with the spinoff of ServiceMaster’s American Home Shield business, which is expected to be completed during the third quarter.

Sanchez gets clobbered

Bonds of Sanchez Energy Corp. were under pressure, down as much as 6 points, in the early going on Tuesday as the company posted losses which it is chalking up to underwater hedges and disappointing production, a trader said.

Sanchez Energy’s 6 1/8% senior notes due January 2023 were at 63½ bid Tuesday morning, down 4 to 5 points, the trader said.

Sanchez said in an investor presentation that it has more than 20,000 barrels a day of oil hedged in the second quarter at $52.61 a barrel, well below market prices.

The Houston-based company also reported production declines which it attributed to poor well performance and new completion technology.

Elsewhere the stock of Mallinckrodt plc soared and bond prices improved Tuesday as the company reported better than expected sales of its costly H.P. Acthar Gel multiple sclerosis treatment, the trader said.

The Mallinckrodt International Finance SA/Mallinckrodt CB LLC 5½% senior notes due April 2025 were at 86½ bid on Tuesday, up 3½ points.

Among recent issues SM Energy Co.’s new 6 5/8% senior notes due January 2027 (B2/BB-/BB-) were holding in above their issue price on Tuesday at 101 bid, 101¼ offered.

The $500 million issue of 8.5-year paper priced at par on Monday, at the tight end of talk, and inside of initial talk.

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