Crescent Energy brings drive-by; Mauser on HY deck, existing notes up; Norwegian adds

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 25 – Crescent Energy brought a drive-by new deal to the junk bond market on Wednesday.

Meanwhile, it was another heavy morning in the secondary space with disappointing earnings from Microsoft dragging down broader markets as investors look to tech earnings to determine if the January rally will last.

While the cash bond market was off about ¼ point early in the session, buyers once again lifted the space midsession with the market closing Wednesday largely unchanged, sources said.

New paper continued to dominate the tape.

Caesars Entertainment Inc.’s 7% senior secured notes due 2030 (Ba3/B) continued their upward trajectory despite the wider weakness with the notes adding about ½ point.

Norwegian Cruise Line’s 8 3/8% senior secured notes due 2028 (B1/BB-) were also lifted after a lackluster start in the aftermarket.

Mauser Packaging Solutions Holding Co.’s 7¼% senior notes due 2025 (Caa2/CCC) were also on the rise in heavy volume after the company launched an exchange for the notes as part of a series of refinancing transactions to address its 2024 and 2025 maturities.

Primary market

Crescent Energy priced a $400 million issue of five-year senior notes (B1/B+/BB-) at par to yield 9¼% in Wednesday drive-by.

The yield printed at the tight end of the 9¼% to 9½% yield talk.

It was heard to be three-times oversubscribed early Wednesday afternoon, a trader said.

A significant number of investors who put in for bonds received no allocation, according to a sellside source.

Elsewhere Wednesday Mauser Packaging Solutions kicked off a $2.75 billion offering of 3.5-year senior first-lien notes.

An investor conference call is scheduled for Thursday, and the deal is set to be on a roadshow through Feb. 1.

Initial guidance has the notes coming to yield in the mid-to-high 8% area (see related stories in this issue).

With the reactivation of the primary market to an extent which exceeds the modest expectations heard at the end of the old year, the junk market has run hot and heavy since the beginning of January, source say.

The composite spread of the Merrill Lynch US High Yield Master II Index which was 442 basis points at Tuesday's close, began the year at 488 bps—a 46 bps tightening, month to date.

That's a big move, market sources say.

“Spreads are tighter than we think they ought to be,” a portfolio manager said on Wednesday, adding that with the junk index up 3¾% on the year the market has set a pace for tightening that it can't possibly maintain.

Heavy cash balances heading into the new year, and a calendar that was all but nonexistent in the autumn months of 2022, set January's phenomenal tightening in motion, the portfolio manager remarked.

A January pattern has developed in the new issue market, which sees weeks being front-loaded with drive-bys and deal announcements concentrated on Mondays and Tuesdays.

The week ahead may deviate from the pattern, a trader said on Wednesday.

The primary market might pause ahead of the Jan. 31 to Feb. 1 Federal Reserve meeting, the source said, noting that the markets are anticipating that the Fed's interest rate-setting Federal Open Market Committee will increase its benchmark rate by 25 bps, not the 50 bps increase it brought in December, or the four successive 75 bps increases in delivered earlier in the past year.

The Fed may even signal that it will exercise prudence in the months ahead, as the central bank endeavors to tame inflation, the trader said.

The primary market, with January new issue volume that has exceeded expectations ($14.9 billion in 20 tranches), may wait to see what actually materializes at next week's Fed meeting, the source added.

Caesars upward trajectory

Caesars’ 7% senior secured notes due 2030 continued their upward trajectory in heavy volume on Wednesday.

The 7% notes gained ½ point to trade in the 101½ to 101¾ context heading into the market close, a source said.

The notes continued to dominate activity in the secondary space with $83 million in reported volume.

Caesars’ $2 billion issue of the 7% notes, which priced at par on Jan. 23, were a blowout during bookbuilding with the strong demand for the notes following them into the secondary space.

The offering was more than 4x oversubscribed and the notes have had solid upward momentum since breaking for trade.

Norwegian lifted

After a lackluster start in the secondary space, Norwegian’s 8 3/8% senior secured notes due 2028 were gaining strength.

The notes launched the day in the par to par ¼ context but added ½ point as the market gained strength in the afternoon.

The notes closed Wednesday in the par ½ to par ¾ context, the highest level for the notes since the $600 million issue priced at par on Jan. 19.

While most of the deals of 2023 have seen strong aftermarket performances, Norwegian’s notes have been stuck at par since pricing.

Sources pointed to the tight pricing of the notes and some hesitation about the sector as factors in their underperformance.

Mauser’s exchange

Mauser’s 7¼% senior notes due 2025 were on the rise in heavy volume after the company announced an exchange for the notes as part of refinancing transactions.

The notes gained ¾ point to close Wednesday at 97¼, a source said.

There was $23 million in reported volume.

The notes were on the rise after the company announced an exchange for any and all of the $1.35 billion outstanding 7¼% notes.

The company is offering to exchange $1,000 in principal of the unsecured notes for $1,000 in principal of newly issued 9¼% senior secured second-lien notes due 2027 for those who tender by the early deadline of Feb. 7, Prospect News reported. (See related article in this issue.)

The exchange offer coincides with Mauser’s $2.75 billion offer of senior secured first-lien notes due 2026 with proceeds to be used to refinance its secured notes and term loan facility.

“They’re taking away some of their refinancing risk,” a source said.

Fund flows

The cash flows of the dedicated high-yield bond funds were mixed and modest on Tuesday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds sustained $48 million of outflows on the day.

High-yield ETFs were positive on the day, posting $26 million of inflows on Tuesday, the source said.

The combined funds are tracking $1.31 billion of net outflows for the week that was set to conclude at Wednesday's close, according to the market source.

Of note, actively managed bank loan funds sustained $126 million of daily cash outflows on Tuesday, their heaviest outflows thus far in 2023, the market source said.

Indexes

The KDP High Yield Daily index shaved off 5 points to close Wednesday at 53.28 with the yield now 6.92%.

The index was off 3 points on Tuesday after adding 4 points on Monday.

The ICE BofAML US High Yield index fell 4 bps with the year-to-date return now 3.724%.

The index shaved off 0.1 bp on Tuesday after adding 3.4 bps on Monday.

The CDX High Yield 30 index fell 7 bps to close Wednesday at 102.58.

The index gained 10 bps on Tuesday and 44 bps on Monday.

© 2015 Prospect News.
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