Upsized Fortescue megadeal, Seven Generations drive by; new 7G, existing Fortescue bonds climb

By Paul A. Harris and Paul Deckelman

New York, April 22 – For a third consecutive session, opportunistically timed and quickly marketed drive-by offerings accounted for all of the day’s pricings on Wednesday, rather than regularly scheduled deals off the forward calendar.

Australian iron ore miner Fortescue Metals Group Ltd., issuing through its FMG Resources subsidiary, brought an upsized $2.3 billion issue of seven-year secured paper to market.

Traders did not see any immediate aftermarket dealings in the big transaction, owing to the relative lateness of the hour at which it priced.

However, the company’s existing bonds were higher across the board, given a boost by the news that proceeds from the new deal will be used to address the company’s nearest-term bond maturities.

The day’s other pricing came from Canadian oil and natural gas exploration and production operator Seven Generations Energy Ltd., which did $425 million of eight-year notes. Those bonds were heard to have moved up solidly on heavy volume.

The day’s issuance totaled $2.67 billion in two tranches – up from the $1.2 billion of new paper that got done on Tuesday via drive-by deals from energy company Halcon Resources Corp. and homebuilder Lennar Corp. Both of those deals were among Wednesday’s most active high-yield issues.

Statistical indicators of secondary market performance turned mixed after having been higher over the previous two sessions.

Fortescue’s $2.3 billion deal

Drive-by action continued to hold sway over the new-issue market on Wednesday, as two quick-to-market issuers, each one bringing a single tranche of notes, raised an overall total of $2.67 billion.

Both deals were upsized.

Both priced on top of final talk but inside of earlier talk and guidance.

FMG Resources, subsidiary of Australia-based Fortescue Metals Group, priced an upsized $2.3 billion issue of 9¾% senior secured notes due March 1, 2022 (Ba1/BB+/BBB-) at 97.608 to yield 10¼%.

The deal, which was upsized from $1.5 billion, priced on top of final coupon, price and yield talk.

The discount decreased from the 96.5 area, where initial discussions took place, according to market sources. The yield came inside of initial discussions that contemplated a yield as high as 10½%.

The Fortescue deal was multiple-times oversubscribed, according to an investor.

The full $1.5 billion amount of bonds announced on Wednesday morning was spoken for prior to the announcement, the source added.

J.P. Morgan ran the books.

The East Perth, Western Australia-based iron ore mining company plans to use the proceeds to redeem its 6% senior notes due 2017 and its 6 7/8% senior notes due 2018. The company will use the additional proceeds that resulted from the deal’s upsizing to address its 2019 maturities.

As part of the transaction, roughly $450 million of notes due 2019 have been swapped into the new secured notes, according to the source.

Seven Generations upsizes

Seven Generations Energy priced an upsized $425 million issue of eight-year senior notes (B2/CCC+) at par to yield 6¾%.

The deal was upsized from $400 million.

The size and yield came on top of final talk. The yield printed 12.5 basis points inside of earlier official talk in the 7% area. Initial guidance was 7% to 7¼%.

Credit Suisse and RBC were the joint bookrunners.

The Calgary, Alta.-based energy exploration and production company plans to use the proceeds to fund its capital budget and for general corporate purposes.

Return to unsecured paper?

Unlike the recent spate of secured deals from the energy E&P sector, Wednesday's Seven Generations Energy deal features senior unsecured paper, sources noted.

Early in 2015, dealers began pitching secured notes deals to issuers from the sector, which was badly beaten up due to the phenomenal crash in crude oil prices that took place late in 2014.

The secured deals were a response to concerns that issuers might face resistance to unsecured paper on the part of high-yield investors.

That may be changing, sources said on Wednesday.

At present there is a big bid for energy paper from energy opportunity funds, among others, a debt capital markets banker said on Wednesday.

In the face of this demand, issuers from the energy space are beginning to question the need to bring secured deals, and may soon start to turn up in the market with senior unsecured notes, the banker said.

“This situation is presently evolving,” the source remarked.

Trinseo downsizes bonds

Trinseo downsized its offering of seven-year senior notes (B3/B-) to $700 million-equivalent from $750 million equivalent, shifting $50 million of proceeds to its term loan.

In addition the company announced tranche sizes and price talk.

The dollar tranche is sized at $300 million, and the notes are talked to yield 6¾% to 7%.

The euro tranche is sized at €375 million, with the notes talked to yield in the 6½% area.

The deal is set to price early Thursday morning, New York time.

Deutsche Bank, Citigroup, Barclays, Goldman Sachs, HSBC, Mizuho, Scotia and SMBC Nikko are the joint bookrunners.

Elis at the tight end

In the European market, France-based Elis priced an €800 million issue of seven-year senior notes (Ba2/BB) at par to yield 3%.

The yield printed at the tight end of yield talk in the 3 1/8% area.

Joint global coordinator BNP Paribas will bill and deliver. Deutsche Bank was also a joint global coordinator.

Credit Agricole CIB, HSBC Bank plc and SG CIB were the joint bookrunners.

Proceeds from the notes, which were issued by Elis' wholly owned subsidiary, Novalis SAS, will be used to take out the existing senior secured notes and senior subordinated notes and for general corporate purposes.

Ineos talk 4% to 4¼%

Ineos Finance plc talked its €770 million offering of eight-year senior secured notes (confirmed Ba3/expected BB-) to yield 4% to 4¼%.

The deal is set to price on Thursday.

JPMorgan and Barclays are the global coordinators. HSBC, Royal Bank of Scotland, UBS and ING are bookrunners.

The London-based manufacturer of petrochemicals, specialty chemicals and oil products plans to use the proceeds to redeem all of its 7½% senior secured notes due 2020.

Outflows on Tuesday

The cash flows of the dedicated high-yield funds were flat to negative on Tuesday, the most recent session for which data was available at press time, sources said.

High-yield exchange-traded funds were flat on the session while actively managed funds saw $335 million of outflows, the source added.

Seven Generations gains

In the secondary market, a trader pegged the new Seven Generations 6¾% notes due 2023 in a 101-to-102 bid context, up from the par level at which those bonds had priced earlier.

A second trader quoted the paper at 101 bid, 101½ offered.

At another desk, a market source located the new notes at 101½ bid on volume of over $62 million, putting it well up on the day’s Most Active issues list.

Fortescue existing bonds move

The day’s other pricing – FMG Resources’ upsized $2.3 billion of 9¾% senior secured notes due 2022 – priced too late in the sessions for any kind of initial aftermarket dealings, a trader said.

However, there was no shortage of Fortescue paper floating around in Junkbondland on Wednesday.

A trader said that “FMG’s structure was active today on the news of the secured deal coming,” since the proceeds will be used to address its 2017, 2018 and 2019 note maturities, “and iron ore prices [were] jumping over 5%.”

For instance, he saw the company’s 6 7/8% notes due 2022 “kind of all over the place today – they were up, they were down,” before finishing at 73 bid, up 1 point.

“They were kind of a mixed bag in trading.”

More than $68 million of those notes changed hands, with a second trader seeing them going home at 73½ bid, up 1½ points on the day.

He saw FMG’s 8¼% notes due 2019 even more active, with over $204 million of turnover and the notes up 1½ points, ending at 85 bid.

Its 6% notes due 2017 rose just under 3 points, ending at 103 1/8 bid on volume of over $43 million, while its 6 7/8% notes due 2018 jumped 4 points to close at 103½, with more than $20 million traded.

Halcon busy, lower

One of the traders said that “between those [FMG bonds] and Halcon, those were the most active issues.”

He saw Halcon’s new 8 5/8% senior secured second-lien notes due 2020 trading around 102 bid, “off 3/8 to ½ point from where they were trading last [i.e., Tuesday] night.”

Another market source said those bonds lost 3/8 point, ending around 102, with more than $115 million having changed hands.

The Houston-based oil and gas E&P company priced $700 million of the notes at par on Tuesday after having upsized the quick-to-market issue from an originally announced $500 million.

Those new bonds quickly jumped to a 102¼-to-103¼ bid range, but “they were under pressure today,” the source said.

Halcon’s 9¾% notes due 2020 were quoted by a market participant at around 80 bid, which he called down 2 to 2½ points.

A second trader saw more than $24 million of that bond changing hands, and said they were down some 2¼ points on the day at 79 3/8 bid.

Its 8 7/8% notes due 2021 lost 1 5/8 points to end at 77 bid on volume of more than $22 million.

Both of those existing bonds had fallen on Tuesday on the news the company would sell a big new tranche of secured debt, which would go well above the existing notes in the company’s capital structure.

Indicators turn mixed

Statistical indicators of junk market performance turned mixed on Wednesday after having been higher on Monday and Tuesday.

The KDP High Yield Daily index was down by 2 bps on Wednesday, to 71.83%. It had gained 2 bps on Tuesday after having been unchanged on Monday.

Its yield rose by 1 bp to 5.14%, its third widening in the last four sessions. On Tuesday, it had narrowed by 2 bps.

The Markit Series 24 CDX North American High Yield index gained 1/32 point on Wednesday, closing at 107 15/32 bid, 107½ offered. It was the index’s third straight gain, having edged up by 1/16 point on Tuesday and improved by 3/16 on Monday.

The Merrill Lynch U.S. High Yield Master II index lost 0.023% on Wednesday, its first loss after two straight gains, including Tuesday’s 0.059% advance.

The setback lowered its year-to-date return to 3.793% from Tuesday’s 3.817%, its peak level for the year so far.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.