Earthstone prices in HY; Fortescue active; Holly Energy, Burford at premiums; Rite Aid dives

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 7 – Following a sizable burst of new issue business on Tuesday and Wednesday, the high-yield primary market saw just one deal clear the market on Thursday.

In a heavily oversubscribed offering, Earthstone Energy Holdings, LLC priced a $550 million issue of 8% five-year senior notes (B3/B+/B+).

Oldcastle BuildingEnvelope (Oscar AcquisitionCo LLC) joined the forward calendar with a $985 million two-tranche offering (Caa1/CCC+), which is expected to price in the coming week.

Meanwhile, the secondary space stabilized on Thursday with the cash bond market largely unchanged after a two-day sell-off drove it down by about 1 point.

New paper remained in focus after the recent flurry of activity from the primary market.

Fortescue Metals Group Ltd.’s two tranches (Ba1/BB+) were mixed in the secondary with the higher-yielding, longer duration tranche outperforming its lower coupon, shorter duration counterpart.

However, both tranches were well off the heights seen after breaking for trade the previous session.

Burford Capital Global Finance LLC’s 6 7/8% senior notes due 2030 (Ba2/BB-) continued to trade at a healthy premium to their discounted issue price.

Holly Energy Partners, LP and Holly Energy Finance Corp.’s 6 3/8% senior notes due 2027 (Ba3/BB+/BB+) outperformed with the relatively cheap pricing and short duration of the notes combined with the interest in the sector driving their aftermarket performance.

Outside of recent issues, Rite Aid Corp.’s junk bonds were the largest losers in the space with the pharmacy retailer’s capital structure off more than 4 points after an analyst report raised alarm bells about the company’s future.

Meanwhile, high-yield mutual and exchange-traded funds saw their second consecutive week of inflows with $296 million entering the space in the week through Wednesday’s close, according to the Refinitiv Lipper US Fund Flows report.

The inflows broke a historic run of 11 consecutive outflows.

Thursday’s primary

Following the $4.1 billion in eight tranches that priced on Tuesday and Wednesday, the high-yield primary market saw just one clear the market on Thursday.

At the conclusion of a roadshow, Earthstone Energy priced a $550 million issue of 8% five-year senior notes (B3/B+/B+) at par, at the tight end of talk.

The deal was four-times oversubscribed at lunchtime in New York, according to a sellside source who added that there was significant or better reverse inquiry.

There was also one new deal announcement on Thursday.

Oldcastle BuildingEnvelope began a roadshow on Thursday for a $985 million two-part offering: $400 million of seven-year senior secured notes (B1/B) with initial guidance in the mid-to-high 6% area and $585 million of eight-year senior unsecured notes (Caa1/CCC+) with initial guidance in the mid-to-high 9% area.

Oldcastle plans to be on the road with the deal through the middle of the April 11 week.

Fortescue mixed

Fortescue’s two tranches of senior notes were mixed in the aftermarket with the higher yielding notes outperforming their lower coupon counterparts.

However, both tranches were lower than where they closed Wednesday after breaking for trade.

On Thursday, Fortescue’s 6 1/8% senior notes due 2032 were marked at par ½ bid, 101 offered heading into the market close, according to a market source.

There was $44 million in reported volume.

The 5 7/8% senior notes due 2030 were marked at 99½ bid, par offered.

There was $37 million in reported volume.

Both tranches closed Wednesday at 101 bid, 101½ offered.

The notes played to healthy demand during bookbuilding and saw a strong break.

However, there were still some jitters in the market. “People are unnerved in general,” a source said.

Fortescue priced a $700 million tranche of the 5 7/8% notes and an $800 million tranche of the 6 1/8% notes at par in a Wednesday drive-by.

The 5 7/8% notes priced in the middle of the 5¾% to 6% yield talk; the 6 1/8% notes priced in the middle of the 6% to 6¼% yield talk.

The deal was heard to have played to $2.2 billion of demand across both tranches.

Burford looks cheap

Burford’s 6 7/8% senior notes due 2030 were trading at a healthy premium to their discounted issue price

The 6 7/8% notes were marked at par bid, par ¼ offered heading into the market close.

They continued to improve after closing the previous session at 99½ bid, par offered.

The BB rated paper priced at a discount and well wide of the BB index.

“They look pretty cheap,” a source said.

The widening of pricing on recent deals was an indication of the repricing occurring in the market.

Burford Capital priced an upsized $360 million, from $350 million, issue of 6 7/8% notes at 99.242 to yield 7%.

Holly Energy outperforms

Holly Energy’s 6 3/8% senior notes due 2027 outperformed in the aftermarket with the relatively cheap pricing of the notes, their short duration, and the recent interest in the sector driving their performance.

The 6 3/8% notes were marked at 101½ bid, 102 offered heading into the market close, according to a market source.

There was $16 million in reported volume.

The notes priced cheap for BB paper with the BB index yielding about 5%.

The notes were also a shorter five-year duration with shorter duration paper sought by investors.

The petroleum product and crude oil transportation company is also from a sector that has been hot since Russia’s invasion of the Ukraine, a source said.

Holly Energy priced a $400 million issue of the 6 3/8% notes at par in a Wednesday drive-by.

The yield printed at the tight end of the 6 3/8% to 6½% yield talk.

Rite Aid dives

Rite Aid’s capital structure was under pressure on Thursday following an analyst report that questioned the drug store retailer’s future.

Rite Aid’s 8% senior notes due 2026 fell 4 points to close Thursday at 86 7/8, according to a market source.

The notes were the most active with $17 million in reported volume.

The 7½% senior notes due 2025 fell 4 5/8 points to close the day at 86 7/8 with about $8 million in reported volume.

Rite Aid stock also sank more than 17% during Thursday’s session.

The company’s capital structure was under pressure after a Deutsche Bank analyst slashed their price target on the stock to $1 from $16 and questioned the company’s future ability to operate.

All eyes will be on the company’s 2023 EBITDA guidance when it reports fourth-quarter earnings on April 14 after analyst George Hill warned Rite Aid will need to generate between $400 million to $450 million in adjusted EBITDA to continue to operate, MarketWatch reported.

Indexes

The KDP High Yield Daily index fell 19 points to close Thursday at 60.56 with the yield 5.78%. The index was down 42 points on Wednesday and 20 points on Tuesday after climbing 13 points on Monday.

The CDX High Yield 30 index fell another 14 basis points to close Thursday at 104.83. The index was down 40 bps on Wednesday and 60 bps on Tuesday after climbing 52 bps on Monday.

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