Mineral Resources carries over; Crestwood Midstream up; Staples tranche closes at par

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 12 – While the domestic high-yield primary market was expected to price one deal on Friday there were no updates on it by press time.

Mineral Resources Ltd.'s $750 million offering of eight-year senior notes (Ba3/B+) will most likely be next week’s business, sources said.

While the forward calendar is thin, Natural Resource Partners LP’s $275 million offering of six-year senior notes and Vizient, Inc.’s $300 million offering of unsecured notes are also expected during the April 15 week.

High-yield bonds have posted record returns in the first quarter of 2019 and new paper has been in demand in the secondary space.

However, the buyside has asserted itself during the subscription process as is evident in the pricing of several recent deals, a dynamic that may soon give way due to demand, sources speculated.

Meanwhile, the secondary space closed the week on firm footing. However, trading volume was light with familiar names continuing to see the bulk of trading activity.

Crestwood Midstream Partners LP’s recently priced 5 5/8% senior notes due 2027 (B1/BB-) were not very active on Friday although the notes were trading at a slight premium to their issue price, sources said.

Staples Inc.’s 7½% senior secured notes due April 15, 2026 (B1/B+) remained a major volume mover in the secondary space with the notes continuing to gain momentum and closing the week at par.

Pacific Gas & Electric Co.’s 6.05% senior notes due 2034 also remained in focus with the notes continuing to post gains following proposed legislative changes in California.

The forward calendar

The new issue market was quiet heading into the weekend.

Some market watchers were looking for Australia-based Mineral Resources to price its $750 million offering of eight-year senior notes (Ba3/B+) ahead of the Friday close.

However, by the middle of Friday afternoon there were no updates.

One trader reasoned that it was already Saturday in Australia, making anything but the very earliest possible Friday execution unlikely.

This source said that Mineral Resources is likely playing to some investors beyond the middle range of players for U.S. high-yield deals. Asian accounts may be having a look, the trader said.

The deal has initial guidance of 7¾% to 8%.

Elsewhere in the week ahead, Natural Resource Partners is set to start a roadshow on Monday in New York for a $275 million offering of six-year senior notes.

Early guidance has that deal shaping up in the 9% area, a trader said.

The offer, via sole bookrunner Citigroup Global Markets Inc., is expected to price Wednesday.

The Houston-based master limited partnership plans to use the proceeds to refinance its 10½% senior notes due in 2022.

Meanwhile. Vizient is in the pipeline with a $300 million offering of unsecured notes.

That deal is expected to surface during the April 15 week via J.P. Morgan Securities LLC, an investor said.

Discipline vs. demand

The buyside asserted itself in the first quarter of 2019, sources say.

Disciplined investors demonstrated preferences for secured bonds and meaningful covenant protection.

Those bringing unsecured paper or junk with low single B or triple C ratings tended to pay prices well in excess of initial price talk.

On March 28, Surgery Center Holdings, Inc. priced a $430 million issue of senior notes due 2027 (Caa2/CCC) at par to yield 10%, 25 basis points beyond the wide end of the 9½% to 9¾% yield talk. Initial guidance was in the 9¼% to 9½% area.

On March 22, Nexeo Plastics priced a $410 million issue of 10 1/8% senior secured notes due 2026 (B3/B) at 98.171 to yield 10½%, 50 basis points beyond the wide end of the 9¾% to 10% yield talk.

One prospective issuer, Kodiak Gas Services LLC, was even sent packing.

Kodiak withdrew its $400 million offering of eight-year senior notes (Caa2/B-/B).

In late March, talk on the deal was heard to have widened to 10% from earlier talk of 9¼% to 9½%. Early guidance was in the 8½% to 8¾% area.

And in each of these cases there were covenant changes, sources said.

The unsecured tranche of last week's megadeal from Staples was also a case in point, a trader remarked on Friday.

Staples unveiled its eight-year unsecured notes (B3/B-) with whispers in the high 9% to low 10% area in a tranche sized at $1.375 billion.

But when the smoke cleared the company priced just $1 billion of unsecured bonds at par to yield 10¾%.

Subsequently, the forces of supply and demand appear to have asserted themselves with respect to Staples’ unsecured bonds, the source said.

Initially those bonds lagged in the secondary, but by Friday that was no longer the case, the trader recounted, marking the Staples 10¾% unsecureds at 102 bid, 102½ offered.

Part of the story is the coupon, the trader said, suggesting that investors see decent or better value in the Staples 2027 unsecured notes at 10¾%.

In a broader context, however, the market has run pretty hard, the trader said, noting that the Bloomberg Barclays U.S. Corporate High Yield Bond index returned a whopping 8.21% in 2019 to Thursday's close.

Amid this rally in high yield, lower quality paper has begun to outperform.

The laudable discipline that the buyside demonstrated, year to date, may finally be giving way to demand for bonds.

That could help to make the primary market a friendlier place for issuers, and ultimately help to generate a more vigorous calendar, the trader said.

Crestwood Midstream up slightly

Crestwood Midstream’s newly priced 5 5/8% senior notes due 2027 were trading at a slight premium to their issue price in the secondary space on Friday.

However, the notes were not very active with trading volume light across the board in the secondary space.

The 5 5/8% notes were quoted at par 1/8 bid, par 3/8 offered Friday afternoon.

While the notes saw some activity around noon ET, activity surrounding the notes petered out by midafternoon.

Crestwood Midstream priced an upsized $600 million issue of the 5 5/8% notes due 2027 at par in a Thursday drive-by.

The issue size increased from $500 million.

The yield printed at the tight end of yield talk in the 5¾% area.

Staples at par

Staples’ struggling 7½% senior secured notes due 2026 continued their upward momentum on Friday to close the week at par.

The 7½% notes were quoted at 99 5/8 bid, 99 7/8 offered early in the session, according to a market source.

They continued to trade up as the day progressed and closed at par.

The notes were again among the most actively traded issues in the secondary space.

The 7½% notes have largely lagged their issue price since pricing at par on Tuesday. The notes traded as low as 98¼ after breaking for trade.

However, they staged a late week recovery.

While less active, Staples 10¾% senior unsecured notes due 2027 continued to post gains in secondary trading.

As stated above, the 10¾% notes stood poised to close Friday at 102½ after closing the previous session at 101¾.

While Staples’ secured tranche struggled, the unsecured notes made steady gains in secondary trading.

PG&E gains continue

Pacific Gas & Electric’s 6.05% senior notes due 2034 remained in focus with the notes continuing to post gains in high-volume activity.

The 6.05% notes were up ½ point and stood poised to close the week at par ½, sources said. The notes opened the week around 98.

The notes gained 1½ points during Thursday’s session following news that Governor Gavin Newsom of California was considering proposing a wildfire insurance fund for utility companies to help cover the cost of fire damages.

On Friday, the governor called on lawmakers to consider a series of proposals to change laws surrounding utility companies’ liabilities for wildfires, including changing the legislation that holds utilities responsible for wildfires involving their equipment, the San Francisco Chronicle reported.

Pacific Gas & Electric filed for bankruptcy in January soon after losing its investment-grade status due to liability from the California wildfires.

Indexes gain

Indexes closed out the week with gains.

The KDP High Yield Daily index rose 2 basis points to close Friday at 70.54 with the yield now 5.74%.

The index was up 7 bps on Thursday, 1 bp on Wednesday, 1 bp on Tuesday and 7 bps on Monday for a cumulative gain of 18 bps on the week.

The ICE BofAML US High Yield index was up 21.7 bps with the year-to-date return now 8.575%.

The index was up 28.5 bps on Thursday, 8 bps on Wednesday, 1.4 bps on Tuesday and 9.8 bps on Monday for a cumulative gain of 69.4 bps.

The index shot past 8% year-to-date returns on Monday after only recently surpassing the 7% threshold on March 26 and passing 6% year-to-date returns on March 11.

The CDX High Yield 30 index rose 39 bps to close Friday at 107.69.

The index was up 9 bps on Thursday and 27 bps on Wednesday after dropping 16 bps on Tuesday and gaining 9 bps on Monday.

The index saw cumulative gains of 68 bps on the week.

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