Sabine Pass upsizes megadeal; CDW, MarkWest also price; drillers busy, funds up $1.09 billion

By Paul A. Harris and Paul Deckelman

New York, Feb. 26 – With strong technical conditions setting the stage, the high-yield primary arena saw an intense burst of activity Thursday. Four separate issuers brought opportunistically timed and quickly shopped issues to market.

The big deal of the day came from natural gas transportation and storage operator Sabine Pass Liquefaction LLC, which did a greatly upsized $2 billion issue of 10-year secured notes. The new issue was actively traded mostly around the notes’ issue price.

Energy exploration and production company MarkWest Energy Partners, LP priced an upsized $650 million fungible add-on to its existing 2024 notes. The credit was seen up from its issue price in heavy trading but off from the levels at which those existing bonds had traded before the new-deal news.

Technology products and services provider CDW Corp. did a $525 million eight-year offering, which firmed modestly in brisk aftermarket dealings.

And American Airlines Group Inc. parachuted in with a $500 million five year transaction that came to market too late for any kind of real secondary activity.

Away from the new deals, the junk market saw active trading in a pair of energy contract drillers.

The various issues of Transocean Inc. were higher in active dealings after Moody’s Investors Service cut the company’s ratings to junk, although the other two major agencies still consider it to be high grade, for now.

Hercules Offshore Inc.’s bonds were battered on the news that it had lost a major contract.

Statistical indicators of junk market performance were higher across the board on Thursday for a third straight session and the fourth session in the last five.

In other numerical signals, high-yield mutual funds and exchange-traded funds notched their fifth-consecutive billion-dollar-plus net inflow in the latest week as $1.09 billion more came into those funds than left them during that time.

Sabine doubles deal size

The primary market sparked to life on Thursday, with four issuers bringing single-tranche drive-by deals, raising a combined total of $3.69 billion.

Executions reflected an abundance of technical strength now permeating the high-yield asset class, a trader said.

Two of the deals upsized.

Two came at the tight end of talk, while the other two came within talk.

And on the heels of its Global High Yield & Leveraged Finance Conference in Miami, JPMorgan was the left bookrunner for three of Thursday's four drive-bys.

Sabine Pass Liquefaction doubled the size of its deal to $2 billion from $1 billion, pricing its issue of non-callable 10-year first-lien senior secured notes (expected ratings Ba3/BB+) at par to yield 5 5/8%.

The yield printed in the middle of the 5½% to 5¾% yield talk.

J.P. Morgan Securities LLC, RBC Capital Markets, Mizuho, SG CIB, Morgan Stanley & Co. LLC, HSBC, Scotia Capital, Credit Suisse Securities (USA) LLC, Lloyds TSB, MUFG, Credit Agricole CIB, BBVA, ING, Banca IMI, Standard Chartered Bank and SMBC Nikko were the joint bookrunners.

Proceeds, including those resulting from the $1 billion upsizing of the deal, will be used to pay capital costs in connection with the construction of the first four liquefaction trains at the company's facility in Cameron Parish, La.

MarkWest upsizes add-on

MarkWest Energy Partners and MarkWest Energy Finance Corp. priced an upsized $650 million add-on to their 4 7/8% senior notes due Dec. 1, 2024 (Ba3/BB) at 101.625 to yield 4.661%.

The quick-to-market deal was upsized from $500 million.

The reoffer price came near the richer end of the 101.25 to 101.75 price talk.

Joint bookrunner Barclays will bill and deliver for the public offer. BofA Merrill Lynch, Goldman Sachs & Co., Morgan Stanley, RBC Capital Markets, SunTrust Robinson Humphrey, US Bancorp and Wells Fargo Securities LLC were also joint bookrunners.

The Denver-based natural gas midstream master limited partnership plans to use the proceeds to refinance debt, to pre-fund capital expenditures and for general partnership purposes.

CDW at the tight end

CDW priced a $525 million issue of eight-year senior notes (B1/B+) at par to yield 5%.

The yield printed at the tight end of the 5% to 5 1/8% yield talk.

JPMorgan, Barclays, Morgan Stanley, Deutsche Bank Securities Inc., Goldman Sachs and BofA Merrill Lynch were the joint bookrunners.

American Airlines prices tight

American Airlines priced a $500 million issue of non-callable five-year senior notes (B3/B) at par to yield 4 5/8%.

The yield printed at the tight end of the 4 5/8% to 4 7/8% yield talk.

JPMorgan Securities, BofA Merrill Lynch, Barclays, Citigroup Global Markets Inc., Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley, BNP Paribas and Credit Agricole were the joint bookrunners for the Rule 144A and Regulation S for life offer.

The Fort Worth-based airline plans to use the proceeds for general corporate purposes.

Bombardier to price Friday

There were also deal announcements.

Bombardier Inc. plans to roll out a $1.5 billion two-part offering of senior notes (expected ratings B1/B+) with a 10 a.m. ET investor conference call on Friday.

The Rule 144A and Regulation S for life deal is set to price Friday afternoon.

The deal is coming in tranches of non-callable 3.5-year notes and 10-year notes that come with five years of call protection.

Tranche sizes remain to be determined.

JPMorgan will lead the deal, with other syndicate names expected to be announced.

The Valcourt, Quebec-based aerospace and transportation company plans to use the proceeds for general corporate purposes.

Capital Product roadshow

Athens-based tanker company Capital Product Partners LP, in conjunction with CPLP Finance Corp., plans to start a roadshow on Friday for a $260 million offering of seven-year first-priority ship mortgage notes (expected ratings B2/BB-).

The roadshow is scheduled to wrap up during the middle part of the week ahead.

Deutsche Bank, Goldman Sachs and Wells Fargo are the joint bookrunners for the Rule 144A and Regulation S for life offer.

The notes, which are secured by first-priority ship mortgages on 11 vessels, become callable after three years at par plus 75% of the coupon and feature a three-year 35% equity clawback.

Proceeds will be used to repay bank debt.

Riverbed talk is 9% to 9¼%

Riverbed Technology Inc. talked its $525 million offering of eight-year senior notes (Caa1/CCC+) to yield 9% to 9¼%, a syndicate source said on Thursday.

Books close at 9:30 a.m. ET for accounts on the East Coast of the United States and at 10:30 a.m. ET for West Coast accounts. The deal is set to price thereafter.

As previously reported, earlier in the week the company downsized the notes offering to $525 million from $575 million, shifting a further $50 million of proceeds to its first-lien term loan.

The shift of proceeds increased the loan size to $1,625,000,000 from $1,575,000,000.

The move represented the second downsizing of the bonds.

An earlier change in the structure of the financing saw the loan increase to $1,575,000,000 from $1,525,000,000, while the bond portion was reduced from the initially planned $625 million.

Citigroup, Credit Suisse, Barclays and Morgan Stanley are the joint bookrunners for the Rule 144A and Regulation S offering.

The notes become callable after three years at par plus 50% of the coupon and feature a three-year 40% equity clawback and a 101% poison put.

The notes come with customary incurrence-based high-yield covenants.

Proceeds will be used to fund the leveraged buyout of Riverbed Technology by affiliates of Thoma Bravo and Teachers' Private Capital, the private investor department of Ontario Teachers' Pension Plan.

Riverbed is a San Francisco-based technology company that specializes in improving the performance of networks and networked applications.

MarkWest moves up

In the secondary realm, traders saw MarkWest Energy Partners’ fungible add-on to its existing 4 7/8% notes due 2024 having moved up from the 101.625 level at which that upsized $650 million transaction had priced.

One trader saw the bonds in a 102-to-102½ bid context, while a second saw them trading between 102¼ and 102¾ bid.

At another desk, a trader quoted the bonds at 102 bid, saying they were up ½ point from the level at which the add-on had priced but down 7/8 point from the levels near or above 103 bid where the existing bonds had been trading prior to that new-deal announcement

MarkWest was the busiest bond in Junkbondland on Thursday, with over $54 million having changed hands.

New Sabine, CDW bonds busy

There was also brisk activity in the new issues from Sabine Pass Liquefaction and CDW.

A trader said that Sabine Pass’s $2 billion behemoth – known to market participants under the more familiar initials CQP, the ticker symbol for its corporate parent, Houston-based Cheniere Energy Partners LP – was trading “anywhere between 99¾ and 100 3/8,” although he saw them going home having tightened to between par and 100 1/8.

“They’re not going anywhere,” he opined.

He gave that same assessment to CDW’s 5% notes due 2023, pegging them in a 100¼ to 100 3/8 range, while noting that “they were trading quite a bit.”

Another market source confirmed that Vernon Hills, Ill.-based technology products and services provider CDW’s new issue indeed was among the day’s busiest, with over $48 million having changed hands. He quoted them at 100 7/16 bid, up from their par pricing level.

He also saw more than $38 million of the new Sabine Pass 5 5/8% notes due 2025 having traded, quoting them slightly below their par issue price at 99 15/16 bid.

There was no immediate aftermarket dealings seen in Fort Worth, Texas-based American Airlines’ new 4 5/8% notes due 2020, due to the relative lateness of the hour at which they priced.

Transocean downgraded

Away from the new deals, a trader said that “Transocean was trading around” following Moody’s downgrade of the Swiss offshore energy contract driller’s ratings to Ba1 from its formerly investment-grade status.

He said that while the company’s bonds were still being traded off the high-grade desk at his particular shop, “surely some of it is trading on high-yield desks elsewhere.”

He quoted its 6 3/8% notes due 2021 trading at 89 to 89½ bid, while its 6½% notes due 2020 were in a 91-to-91½ context.

More than $53 million of the former bonds traded, moving up at least 1¼ point, while over $39 million of the latter were changing hands, although they had eased by 1/8 point.

Hercules not so heroic

Bonds of another offshore contract driller, Hercules Offshore, were meanwhile taking their lumps on Thursday after the Houston-based company lost a drilling contract with Saudi Aramco, the world’s largest oil producer, according to a Wall Street Journal report.

The news, combined with a hefty decline in oil prices, sent the company’s bonds down as much as 9 points, a trader said.

“That’s not good,” the trader said of the news.

He said the 6¾% notes due 2022 were down the most, falling to 30¾. The 8¾% notes due 2021 meantime lost 8 points, closing at 32¼, on volume of more than $24 million.

The 7½% notes due 2021 were meantime 6 points weaker at 32, while the 10¼% notes due 2019 softened 5½ points to 38.

Another source said the 6¾% notes opened straddling 32 but closed around 30½. That compared to previous levels in a 37¾ to 38 context.

The 8¾% notes finished at 32¼, down from 41¼, according to the source.

As for the 7½% notes, they were seen at 31¼ bid, 31½ offered, down from levels around 38 previously. The 10¼% notes ended around 38, down from 43½.

Saudi Aramco terminated its contract for the Hercules 261 rig, though its contracts on the 262 and 266 rigs are intact. Hercules said it is in negotiations with the company to continue the contract, as well as to possibly reduce rates for the other rigs.

As for oil prices, West Texas Intermediate crude oil dropped $2.08, or 4.08%, to $48.91 per barrel. Brent crude slid $1.15, or 1.87%, to $60.48.

On Wednesday, the Energy Information Administration said that U.S. crude oil inventories rose 8.4 million barrels during the week ending Feb. 20, bringing the total stockpile to 434.1 million barrels.

Halcon busy after numbers

Also on the energy front, Halcon Resources Corp.’s 8 7/8% notes due 2021 were quoted little changed at 76 bid Thursday, on active turnover of more than $14 million, after the Houston-based E&P company reported fourth-quarter results.

Its executives said on the company’s conference call that despite the slide in oil prices, its liquidity position was solid, thanks in part to the company’s hedging strategy. (See related story elsewhere in this issue.)

Indicators stay strong

Statistical indicators of junk market performance were higher across the board on Thursday for a third consecutive session and the fourth session in the last five. They had been mixed on Monday.

The KDP High Yield Daily index soared by 14 basis points on Thursday to end at an even 72.00, its sixth straight gain and its ninth such rise in the last 10 sessions, among them Wednesday, when it jumped by 10 bps.

Longer-term, it was the index’s 15th gain in the last 17 sessions.

Its yield meanwhile came in by 5 bps for a second straight session, to 5.10%, its fourth straight narrowing and seventh such tightening in the last eight sessions.

The Markit Series 23 CDX North American High Yield index was up by 5/32 point on Thursday to finish at 107 17/32 bid, 107 9/16 offered, on top of the 3/32 gain seen on Tuesday. Thursday’s advance was its third in a row and the fourth in the last four six sessions.

The Merrill Lynch U.S. High Yield Master II index racked up its 29th consecutive gain on Thursday, moving up by 0.206%, on top of Wednesday’s 0.157% advance. That winning streak dates back to Monday, Jan. 19.

The latest improvement lifted its year-to-date return to 2.971%, its 25th straight new peak level for 2015.That was up from 2.758% on Wednesday.

Funds gain $1.09 billion

Another numerical signpost – high-yield mutual funds and ETFs, considered a reliable barometer of overall junk market liquidity trends – saw their fifth billion-dollar-plus inflow in as many weeks, market sources said, as $1.09 billion more came into those funds than left them during the week ended Wednesday.

That followed the $1.64 billion cash injection reported last Thursday for the seven-day period ended Feb. 18.

The latest gain extended and strengthened the flows’ already-solidly positive footing for the year to date. (See related story elsewhere in this issue.)

Stephanie N. Rotondo contributed to this review

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