Venture Global takes fresh pass at junk market, existing notes pressured; Rite Aid in focus

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 17 – The lights came up in the high-yield primary market on Tuesday as Venture Global LNG Inc. (B1/BB/BB-) announced plans to sell $4 billion of senior secured notes.

Elsewhere on the new issue bourse, co-issuers Global Aircraft Leasing Co., Ltd. and Global Sea Containers II Ltd. continue to shop their $1.95 billion offering of five-year senior PIK toggle notes (Ba2//BB-), to raise cash to pay off the Global Aircraft Leasing 6½% senior PIK toggle notes due September 2024.

Away from announced deals the market awaits word on a $700 million offering of secured notes from Cetera Financial Group Inc. (Aretec Group Inc.) backing its acquisition of Avantax Inc.

The bonds are expected to surface before the end of the week.

Meanwhile, it was a heavy day in secondary trading with the cash bond market falling ¼ to 3/8 point as the market upped its bets for rate increases following retail sales data that took the market by surprise.

The market has continued to underestimate consumer strength with retail sales jumping 0.7% in September, more than double the 0.3% the market was expecting.

While the strong rally of the previous week was driven by optimism that the Fed’s rate hike campaign had run its course, the latest macro data casts doubt on that optimism.

However, new and recent issues and topical news continued to drive volume in the space.

Venture Global’s existing 8 1/8% senior secured notes due 2028 and 8 3/8% senior secured notes due 2031 (B1/BB/BB-) were under pressure in heavy volume as the natural gas producer takes another pass at the market.

Rite Aid Corp.’s 8% senior secured notes due 2026 (Caa3/D/B) were in focus with the notes giving back some gains from a multipoint jump late Monday after the company’s Chapter 11 bankruptcy filing.

Venture Global on deck

The announced new deal from Venture Global includes a tranche of 5.25-year bullet notes, initial talk 8¾% to 9%, and a tranche of 8.25-year notes with 3.25 years of call protection, initial talk 9¼% to 9½%.

Tranche sizes remain to be determined.

The deal is in the market with $1 billion of reverse inquiry, according to a sellside source who added that if demand warrants, the company might come with a substantial upsize.

Launched on a Tuesday morning conference call with investors, and expected to price Thursday the deal could be moved ahead to Wednesday, the sellsider said.

Global Aircraft in the market

Elsewhere, co-issuers Global Aircraft Leasing and Global Sea Containers are still shopping their $1.95 billion offering of five-year senior PIK toggle notes (Ba2//BB-).

The 2024 bonds, which have been gyrating on perceived deal risk, were generally inactive on Tuesday morning, according to a trader in New York who marked them slightly lower at 97½ bid.

They went out Monday at 97¾ bid, the trader said.

When the new deal was announced last week the Global Aircraft Leasing 2024 bonds traded to as high as 98 from the low-to-mid 90s, then retreated to as low as 95 bid, 95¼ offered amid investor wariness that the new deal might not get done, sources say.

In the interim price conversations have gone higher, envisioning an 11½% cash coupon and a 13½% PIK coupon, the trader said.

Earlier guidance envisioned a cash coupon in the 11% area with a 200 basis points step-up for PIK coupon payments, sources say.

Noting that interest payments on the 2024 bonds were PIKed three times – generally coinciding with the coronavirus pandemic – potential buyers of the new bonds are keen to incentivize the company to make its coupon payments in cash, sources say.

To that end the issuers have expressed a willingness to discuss document changes, the trader said.

For the deal to go forward investors need to have confidence that the company will have the ability to service the debt with cash, the source remarked.

Demand for the new bonds was heard to be around one-third deal size Tuesday morning, about where it began the week, the trader said.

Aretec awaited

Away from the announced deals the market awaits word on a $700 million offering of secured notes from Cetera Financial Group (Aretec Group Inc.) backing the acquisition of Avantax Inc.

The bonds were telegraphed to the market on Monday when dealers set a Tuesday bank meeting to launch a $1.689 billion term loan and a $300 million revolver, which are also part of the acquisition financing.

The bonds might surface before the end of the week, the trader said.

Venture Global weakens

Turning to existing issues, Venture Global’s 8 1/8% senior secured notes due 2028 and 8 3/8% senior secured notes due 2031 were under pressure on the heels of the natural gas producer’s latest offering with both tranches off 1 to 1½ points, a source said.

The 8 1/8% senior secured notes due 2028 sank to a 97-handle in active trade and closed the day in the 97¼ to 97½ context.

The yield was about 8 7/8%.

The notes have largely traded on a 98-handle since late October.

The 8 3/8% senior secured notes due 2031 broke below a 97-handle.

The notes were trading in the 96¾ to 97¼ context heading into the market close, according to a market source.

The yield was also about 8 7/8%.

The notes have traded in the 97 to 98 context since late September but popped up to 99 in the market rally of the previous week.

The notes were weaker on the heels of the latest offering, which looked optically more attractive with yields and spreads wider, a source said.

The additional five-year secured note also primed over the outstanding 2031 notes.

Venture Global’s latest offering represents the company’s third pass at the high-yield market in 2023 with the company pricing a $2 billion tranche of the 8 1/8% notes and a $2 billion tranche of the 8 3/8% notes at par in early May.

The company returned to the market later in May to price a $250 million tap of the 8 1/8% notes and a $250 million tap of the 8 3/8% notes at par.

Rite Aid comes in

Rite Aid’s 8% senior secured notes due 2026 were in focus on Tuesday with the notes coming in from a late-day multipoint jump the previous session following news of its bankruptcy filing.

The 8% notes were down 1 point from some late-day prints that had the notes going out at 68½, a source said.

They were wrapped around 67½ in heavy volume on Tuesday.

The notes traded as low as 58 in late September but bounced between 63 and 65 in October as the market awaited the company’s filing.

Rite Aid’s bankruptcy filing has long been expected with the 8% notes trading on their recovery expectations.

Fund flows

The dedicated high-yield bond funds sustained $228 million of net daily cash outflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $223 million of outflows on the day.

Actively managed high-yield funds were marginally negative on the day, posting $5 million of outflows on Monday, the source said.

Indexes

The KDP High Yield Daily index fell 18 bps to close Tuesday at 48.71 with the yield 8.18%.

The index was off 14 bps on Monday.

The ICE BofAML US High Yield index fell 38.2 bps with the year-to-date return now 4.742%.

The index was down 12.2 bps on Monday.

The CDX High Yield 30 index was down 14 bps to close Tuesday at 100.25

The index was up 32 bps on Monday.

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