Civitas drives by; Global Aircraft joins HY calendar; Civitas, Global Air existing notes gain

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 10 – Civitas Resources, Inc. came to market on Tuesday in the junk bond space with a drive-by offering, reactivating the space post-holiday.

Meanwhile, it was a strong day for the secondary sector as buyers emerged to lift the market ¼ to ½ point as Treasury yields sank.

The market was once again repricing its expectations for rate increases with comments from Federal Reserve officials bolstering belief that the rate-hike cycle has come to an end, sources said.

The 10-year Treasury yield fell 14 basis points to 4.664%.

Primary market activity sparked trading in the secondary space with Civitas’ outstanding notes gaining on the heels of its latest offering.

Global Aircraft Leasing Co., Ltd.’s 6½% senior PIK toggle notes due Sept. 15, 2024 popped in active trade with proceeds from its latest offering to be used to take out the notes.

GTCR W-2 Merger Sub LLC’s 7½% senior secured notes due 2031 (Ba3/BB/BBB-) backing the buyout of Worldpay reclaimed a par-handle in active trade on Tuesday after dropping below amid the heaviness in the market the previous week.

Meanwhile, topical news sparked some action in off-the-run issues with MI Windows and Doors, LLC’s 5½% senior notes due 2030 (B3/B/BB-) active but unchanged after a failed takeover effort.

Primary

The primary market reactivated on Tuesday trailing the extended Columbus Day holiday weekend, and a week of dormancy in the runup to that holiday.

Civitas Resources priced a $1 billion issue of seven-year senior notes (B1/BB-/BB) at par to yield 8 5/8% in a drive-by.

The yield printed at the tight end of yield talk in the 8¾% area, and well inside of initial guidance in the low 9% area.

The deal, the sole issue to price during Tuesday’s session, was heard to be five-times oversubscribed, according to a trader who had the new Civitas Resources 8 5/8% senior notes due 2030 going out at par ½ bid, par ¾ offered.

Civitas Resources was the first deal to clear the market since LifePoint Health Inc. priced $1.1 billion of 11% senior secured notes due in October 2030 on Sept. 29.

Meanwhile co-issuers Global Aircraft Leasing Co., Ltd. and Global Sea Containers II Ltd. began an international roadshow for a $1.95 billion offering of five-year senior PIK toggle notes (Ba2//BB-).

Initial talk has the deal coming with a cash coupon in the 11% area.

PIK interest talk has the coupon stepping up by a whopping 200 bps; the more typical PIK premium – in fact the PIK premium on the Global Aircraft Leasing 6½%/7¼% senior PIK toggle notes due September 2024 – is 75 bps.

Proceeds will be used to repay those PIK toggle notes due 2024.

Global Aircraft Leasing is an indirect, wholly owned subsidiary of Bohai Leasing Co., Ltd. which owns 70% of Avolon Holding Ltd.’s outstanding shares (Bohai’s sole asset). Co-issuer Global Sea Containers II is a Bermuda registered transport and container leasing company. Both Bohai/Global Aircraft and Global Sea are controlled by Chinese conglomerate HNA Group Co., Ltd., which was forced into bankruptcy in January 2021.

The notes will be secured by a first-priority security interest in all of the equity interests of Global Aircraft owned by Global Aviation, and all of the equity interests of Global Sea Containers Ltd., owned by Global Sea Containers II.

While prospective investors in the new Global deal are not secured by a pledge of Avolon assets, investors are secured by equity of Bohai, which owns 70% of Avolon’s shares, sources said.

Most of the market was taken by surprise by the deal announcement, a trader said, adding that the early 11% cash coupon guidance sounds somewhat rich, owing to various challenges which prospective investors must reckon with, including but not limited to the frosty present relationship between China and the United States, a steady parade of dispiriting economic and financial headlines coming out of China, and the fact that the bonds on offer are PIK toggle notes which allow the issuer to increase the deal’s leverage by making interest payments in the form of more notes, widely regarded as one of the high-yield market’s most challenging structures.

Global Aircraft sold the outstanding 6½%/7¼% PIK toggle notes due 2024 in late July 2019, and subsequently made three in-kind coupon payments during the Covid pandemic, the trader said, adding that the issuer resumed to cash coupon payments in March 2023.

Civitas gains

Civitas’ outstanding notes were benefitting from the company’s latest pass at the market with its 8 3/8% senior notes due 2028 and 8¾% senior notes due 2031 (B1/BB-/BB-) paring their losses from the previous week.

The 8 3/8% senior notes due 2028 gained ½ point to trade in the par ½ to 101 context heading into the market close, a source said.

The yield was about 8 1/8%.

The 8¾% senior notes due 2031 climbed 1 point to close the day in the 101 to 101¼ context, a source said.

The yield was just shy of 8½%.

The 8 3/8% and 8¾% notes were under pressure the previous week with both tranches down 1½ to 2 points following news of the oil and gas company’s acquisition of assets in the Permian Basin.

However, the strong demand for Civitas’ latest offering was a boon for its outstanding notes, a source said.

Global Aircraft gains

Global Aircraft’s 6½% senior PIK toggle notes due Sept. 15, 2024 popped after the company launched a roadshow for the new offering mentioned above to refinance the notes.

The 6½% notes traded up 3 points.

They were changing hands in the 97½ to 98 context heading into the market close with the yield about 9%, a source said.

The existing notes will be taken out with proceeds from the company’s latest offering.

However, with the deal not expected to price until the Oct. 16 week, the 6½% notes were still trading with some risk premium, a source said.

Worldpay reclaims par-handle

Worldpay’s 7½% senior secured notes due 2031 eliminated their losses from the previous week to reclaim a par-handle.

The 7½% notes gained 1½ points to trade in the par ¼ to par ¾ context heading into the market close, a source said.

The notes sank as low as a 98-handle during the heavy market conditions of the previous week but pared their losses to close last Friday wrapped around 99.

The notes are now trading at the level they were at prior to the sell-off of the previous week.

MI Windows active

MI Windows’ 5½% senior notes due 2030 were trading in heavy volume on Tuesday after a takeover attempt of PGT Innovations Inc. was unsuccessful.

The notes were unchanged in the heavy volume and remained on an 81-handle.

They were changing hands in the 81¼ to 81¾ context throughout the session, a source said.

The yield was about 9½%.

There was $22 million in reported volume.

The notes have traded on an 81-handle since last week.

They were on an 82-handle at the end of September.

The 5½% notes were active following news PGT had rebuffed the takeover effort of MI Windows’ parent company Miter Brands.

Miter was offering $33 per share for PGT but was turned down.

Fund flows

High-yield ETFs had $243 million of daily cash inflows on Friday, the most recent session for which data was available at press time, according to a market source.

Actively managed funds had negative cash flows on the day, sustaining $43 of outflows on Friday, according to the market source.

Indexes

The KDP High Yield Daily index gained 41 bps to close Tuesday at 49.26 with the yield now 8.01%.

The index was down 70 bps the previous week.

The CDX High Yield 30 index gained 31 bps to close Tuesday at 100.61.

The index was down 48 bps on the week last week.

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