New junk deal comes ahead of schedule; OneMain flat; Tap Rock jumps on asset sale to Civitas

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 21 – Summer 2023 got underway in the high-yield primary market amid steady streams of news out of New York and London.

On Wednesday, one dollar-denominated deal priced on an accelerated timeline.

Meanwhile, it was a soft day in the secondary space as markets digested Federal Reserve chair Jerome Powell’s congressional testimony.

The cash bond market was off about ¼ point as Fed officials continued to signal that additional rate hikes were in store.

The market was increasing its bet for a 25 basis points rate increase in July, a source said.

While soft, few were making moves with new paper and topical news the drivers of trading activity in the space.

OneMain Finance Corp.’s 9% senior notes due 2029 (Ba2/BB) were in focus with the notes fighting off a low open to close the day largely flat.

Tap Rock Resources, LLC’s 7% senior notes due 2026 (B3/B) continued to shoot higher in active trade with the company planning to take out the notes with proceeds from its asset sale to Civitas Resources Inc.

Tenet Healthcare Corp.’s senior notes had some selling pressure on Wednesday with several tranches lower in active trade.

Accelerated

GrafTech Global Enterprises Inc., a wholly owned subsidiary of GrafTech International Ltd., priced a $450 million issue of 9 7/8% 5.5-year senior secured notes (B1/BB) at 97.456 to yield 10½%.

The discount factored into talk that had the notes coming to yield 10½% to 10¾%; hence the notes printed at the tight end of yield talk. Initial talk called for an all-in yield of 10¾% to 11%.

GrafTech was heard to be playing to $1.2 billion of demand late Wednesday morning, a trader said.

When the deal was announced on Tuesday it was scheduled to remain in the market until Thursday.

Coming soon

In the wake of the GrafTech placement there remained a $4.9 billion deal calendar, most of which is expected to clear ahead of Friday’s close.

Meanwhile Windsor Holdings III, LLC downsized its offering of seven-year senior secured notes (B2/B+/BB+) to approximately $1 billion from $1.8 billion, shifting the proceeds to its concurrent term loan tranches.

The bonds, coming in support of the buyout of Univar Solutions Inc. by Apollo, are talked to yield in the 8½% area, on top of early guidance.

With the downsizing of the bonds the dollar-denominated term loan was upsized to approximately $2.25 billion from $1.75 billion and the euro term loan was upsized to approximately $850 million euro equivalent from $550 million euro equivalent.

All of the bond and loan tranches were talked in approximate sizes because proceeds might still be shifted among them, a bond trader said on Wednesday.

Demand is skewed toward the bank loan portion of the financing, sources say.

As the Wednesday session got underway the dollar-denominated term loan was playing to $2.75 billion of demand, according to a sellside source who added that at that time demand for the bonds amounted to the original deal-size, $1.8 billion.

The buyout financing is set to price Thursday.

There was also action in the euro-denominated market which saw two deals clear, both of which were heard to be playing to strong demand.

PEU (FIN) Ltd., a wholly owned indirect subsidiary of U.K.-based retailer Pepco Group NV, priced an upsized €375 million issue (from €300 million) of five-year senior secured notes (Ba3//BB+) at par to yield 7¼%.

Pricing underwent serious tightening, with the deal printing 12.5 bps through official talk. Initial guidance was in the high-7% area.

And gaming and software company Playtech plc priced a €300 million issue of five-year senior secured notes (Ba2/BB) at par to yield 5 7/8%.

Here again pricing tightened dramatically. The yield printed at the tight end of the 5 7/8% to 6% revised yield talk. Earlier official talk was 6% to 6¼%. Initial guidance was in the low-to-mid 6% area.

OneMain flat

Moving to secondary trading, OneMain’s new 9% senior notes due 2029 were in focus on Wednesday with the notes fighting off a low open to close the day largely unchanged.

The 9% notes dipped as low as 99 7/8 in early trading.

However, they returned to their previous level to close the day flat at par bid, par ¼ offered, a source said.

There was $89 million in reported volume.

OneMain priced a $500 million issue of the 9% notes at par in a Tuesday drive-by.

While the deal was oversubscribed, some holders of OneMain’s outstanding notes walked away from the deal due to a lack of concessions, a source previously said.

Tap Rock soars on takeout

Tap Rock’s 7% senior notes due 2026 continued to soar on Wednesday with the company poised to take out the notes with proceeds from its asset sale to Civitas.

The 7% notes jumped 4 points on Wednesday after gaining 2 points the previous session.

They opened the day at 98 7/8 and were changing hands in the 102¾ to 103 context heading into the market close, a source said.

There was $17.5 million in reported volume.

The company plans to use proceeds from its asset sale to Civitas to retire the notes, a source said.

The 7% notes were trading on a 96-handle prior to Tuesday when Civitas announced its $2.45 billion purchase of Tap Rock’s Delaware Basin assets.

Tap Rock will receive $1.5 billion in cash and 13.5 million shares of common stock in the deal.

Civitas’ acquisition of Tap Rock’s asset was announced simultaneous to its $2.25 billion cash purchase of E&Ps Hibernia Energy III LLC’s Midland Basin assets.

Civitas is conducting a roadshow for a $2.7 billion two-tranche offering of senior notes to fund the acquisition with a partial mandatory redemption clause on the notes if the acquisitions does not close by Oct. 31.

Tenet lower

Tenet Healthcare’s notes were under pressure on Wednesday with several tranches lower in active trade.

Tenet’s 6 1/8% senior notes due 2028 (B3/B-) were off about 3/8 point to close the day at 95¾, a source said.

The yield was 7 1/8%.

There was $15 million in reported volume.

The 6 1/8% senior secured first-lien notes due 2030 (B1/BB-) were off about ¼ to close the day at 97½ with the yield about 6½%.

There was $14 million in reported volume.

Tenet’s 5 1/8% senior secured first-lien notes due 2027 (B1/BB-) closed the day down ¼ point at 95½ with the yield 6 3/8%.

There was $13 million in reported volume.

Tenet’s 6¼% senior secured second-lien notes due 2027 (B1/B-) sank 3/8 point to close the day at 99 3/8 with the yield about 6½%.

There was $10 million in reported volume.

Fund flows

The dedicated high-yield bond funds had $472 million of net daily cash inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $408 million of inflows on the day.

Actively managed high-yield funds had $64 million of inflows on Tuesday, the source said.

Indexes

The KDP High Yield Daily index was down 13 points to close Wednesday at 50.57 with the yield 7.34%. The index was off 7 points on Tuesday.

The ICE BofAML US High Yield index was down 31.4 bps with the year-to-date return now 5.014%.

The index was down 8.3 bps on Tuesday.

The CDX High Yield 30 index was down 33 bps to close Wednesday at 102.

The index was off 18 bps on Tuesday.

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