RegionalCare hikes talk; HC2 downsizes; PHI drops; McDermott ‘destroyed’; energy under pressure

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 13 – The domestic primary market was quiet on Tuesday as volatility continued to take its toll on capital markets.

RegionalCare Hospital Partners Holdings, Inc. and LifePoint Health, Inc. increased price talk and made covenant changes to its $1,575,000,000 offering of eight-year senior notes (Caa1/CCC+), which is expected to price on Wednesday.

HC2 Holdings, Inc. downsized its $535 million offering of senior notes, shifting some proceeds to a concurrent convertible notes offering with the deal now expected on Wednesday.

While the pipeline is thin, some potential issuers are testing the waters.

Atlantica Yield plc is pre-marketing a $300 million offering of senior notes due 2026 with a roadshow expected to follow.

In the European primary market, two issuers are on the road with a euro-denominated and a sterling-denominated offering.

Meanwhile, the secondary space remained sloppy in the return from the Veterans Day holiday. The market opened lower by 1 point although it stabilized into the afternoon with few sellers by the end of the session, a market source said.

The energy sector remained under pressure as crude oil futures plummeted more than $4 on Tuesday.

PHI Inc.’s already struggling 5¼% senior notes due March 15, 2019 shaved off more than 2½ points in active trading with the maturity of the notes fast approaching and no refinancing deal in sight.

McDermott International Inc.’s 10 5/8% senior notes due 2024 (B2/B-) continued their downward spiral on Tuesday with the notes again dropping 4 points, marking a 19-point decline since reporting earnings.

California Resources Corp. 8% senior secured second-lien notes due December 2022 remained a major volume mover in the secondary space with the notes down by more than 4 points.

RegionalCare hikes talk

RegionalCare Hospital Partners and LifePoint Health increased price talk on its $1,575,000,000 offering of eight-year senior notes (Caa1/CCC+) to 9½% to 9¾% from earlier talk of 9% to 9¼%.

There were also covenant changes.

The deal is set to price Wednesday.

Although pricing has moved well beyond initial talk in the 9¼% area, the bond deal is thought to be in good shape and was never in question, an investor said on Tuesday.

The challenge that the merger financing faces is getting its $3.4 billion seven-year senior secured covenant-light term loan (B1/B+) across the finish line, the source said.

On Tuesday, LifePoint increased pricing on the loan to Libor plus 450 basis points from Libor plus 400 bps.

The loan deal was further sweetened with the extension of the 101 soft call protection to one year from six months.

There were other concessions to prospective loan investors as well.

HC2 downsized, restructured

Elsewhere on Tuesday, HC2 Holdings provided details on a downsized $470 million offering of senior secured notes.

The deal, via sole bookrunner Jefferies, is downsized from $535 million, with $55 million of the proceeds shifted to a concurrent offering of convertible securities, decreasing the overall amount of the capital markets transaction to $525 million from $535 million.

The maturity of the senior secured notes decreased to three years from five years.

Call protection decreased to 1.5 years from two years; the initial call premium remains at par plus 50% of the coupon.

There was no update on price talk which circulated during the Nov. 5 week: 11½% coupon at 98.75 to yield 12%.

Books were scheduled to close Tuesday afternoon (see related story in this issue).

Atlantica Yield pre-marketing $300 million

Atlantica Yield is pre-marketing a $300 million offering of senior notes due 2026, with a roadshow expected to follow.

BofA Merrill Lynch is leading the offer.

The Brentford, United Kingdom-based renewable energy and infrastructure company plans to use the proceeds to take out its 7% senior notes due 2019 and for general corporate purposes including acquisitions of assets.

Two on the road in Europe

Two deals are in the mid-to-late stages of roadshows in Europe.

Groupe Ecore Holding SAS (Luxembourg)’s €255 million offering of five-year senior secured floating-rate notes is running a roadshow that wraps up on Wednesday.

Initial price talk could surface on Wednesday.

And Co-operative Group Ltd. was scheduled to start a roadshow on Tuesday for a £250 million offering of non-callable five-year fixed-rate green-eligible notes.

PHI down

PHI’s 5¼% senior notes due March 15, 2019 were again in focus in the secondary space with the notes trading down in high volume activity.

The notes dropped as low as 92 7/8 but stood poised to close the day at 83¾, a market source said. The notes closed Friday at 85½.

More than $40 million of the bonds were on the tape by the late afternoon.

The 5¼% notes have been under pressure over the past few months as PHI, a helicopter services company to the oil sector, has struggled to execute a refinancing deal for the notes.

A tender offer for the notes was canceled mid-October after the company failed to secure financing for it.

PHI originally planned to use a $500 million offering of five-year senior secured notes to finance the tender offer.

It then downsized the notes to $300 million and began marketing a $300 million senior secured term loan.

The note offering was then withdrawn and the term loan increased to $600 million with pricing raised to Libor plus 750 basis points from Libor plus 700 bps.

However, the term loan was also canceled.

With oil futures plummeting and a disappointing earnings report, optimism about the company’s ability to secure financing is diminishing, sources said.

PHI recently reported a consolidated net loss of $11.5 million for the quarter ended Sept. 30, 2018 compared to a net loss of $3.3 million for the quarter ended Sept. 30, 2017.

McDermott ‘destroyed’

McDermott’s 10 5/8% senior notes due 2024 were again under pressure in high-volume activity on Tuesday with the notes shaving off another 4 points.

The notes were seen at 81½ bid, 82½ offered on Tuesday and were trading just shy of 82 in the late afternoon, sources said.

The notes closed Friday at 86.

More than $36 million bonds were on the tape late in the session.

The notes have gotten “destroyed,” since the company reported third-quarter earnings and the divestiture from one of its business segments on Oct. 31, a market source said.

Prior to the earnings announcement, the notes were trading around par ½.

The drop in crude oil futures have further put the notes under pressure, the source said.

S&P revised its outlook for McDermott to negative from stable on Monday due to weaker than expected earnings and cash flow due to losses in its gas power projects.

McDermott priced a $1.3 billion issue of the 10 5/8% notes at 94.75 to yield 11.865% in April. The notes were among the deals to outperform in 2018 until the company’s earnings announcement.

California Resources drops

California Resources 8% senior notes due 2022 were again major volume movers in the secondary space as crude oil futures plummeted.

The 8% notes were seen at 82¾ bid, 83¾ offered early Tuesday. The notes closed Friday at 86½, marking a 3.5 point decline on the week last week.

Crude oil futures plummeted on Tuesday after descending into bear territory last week.

The barrel price of West Texas intermediate crude oil for December delivery nosedived on Tuesday to settle at $55.69, a decrease of $4.24 or 7.07%.

Tuesday marked the 12th consecutive trading session that oil prices declined, their longest period of consecutive losses since WTI began trading in 1983, MarketWatch reported.

While already under pressure due to concerns about oversupply, crude oil tanked on Tuesday after President Donald Trump encouraged OPEC to gradually increase output.

Indexes down

Indexes opened the week as they closed the last – with losses.

The KDP High Yield Daily index dropped 19 basis points to close Monday at 69.03 with the yield now 6.37%.

The index dropped 20 bps on Friday while still posting a 12 bps gain on the week last week.

The ICE BofAML US High Yield index dropped below the 1% threshold on Tuesday. The index dropped 41.8 bps with the year-to-date return now 0.692%.

The index fell 40.3 bps on Friday although it still marked a 10.4 bps gain on the week last week.

The CDX High Yield 30 index dropped 68 bps to close Tuesday at 104.86. The index dropped 78 bps on Friday and was down 24 bps on the week last week.

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