US LevFin Wrap — Dish leads bond market revival, energy bonanza picks up steam

David Bell
+William Hoffman

20 January 2023•6 min read

A long weekend, and then BOOM — the high yield market was right back to work with six deals totaling over $4bn priced on Tuesday. According to multiple sellside analysts, it was the strongest day of issuance in more than a year.

Yes, last year set the bar pretty low. But after a fairly quiet 2022 for high yield, the past couple of weeks have felt pretty exciting. Here’s a quick roundup of this week’s highlights:

Energy companies continued to dominate 2023 supply, with offerings from TransOcean, Nine Energy Service and others (more on that later)
Jetmaker Bombardier jumped on the refinancing wagon game, taking out its 2024 maturities with an upsized $775m issue of 7.5% SUNs due 2029
Packaging business Sealed Air showed there was appetite for M&A debt, issuing $775m of 6.125% SUNs due 2028 to finance its acquisition of Liquibox
Dish raised a larger-than-expected $1.5bn issue of 11.75% SSNs due 2027, as it continues its capital-intensive 5G buildout as well as tackling upcoming maturities
Norwegian Cruise also returned to the market, with a $600m issue of 8.375% SSNs due 2028 to pay down term loan debt due in January 2024

Feeling energized

That was the shot, now for the chaser: let’s dive a bit deeper into this week’s energy issuance, starting with Nine Energy’s unconventional deal structure.

Not only did the energy services provider price its $300m of 13% SSNs due 2028 with a relatively steep discount (at 95, the YTM was an eye-catching 14.4%) but investors also received five common shares for every $1,000 of principal purchased.

We wrote about the rarity of this kind of deal, and our credit team delved into some of the unique risks of the oilfield services industry.

While Nine Energy showed it can be expensive to refi upcoming maturities, one high yield banker said energy companies may continue to seize on strong investor for the sector, especially to clean up their maturity profile.

Offshore driller Transocean is a prime example of this trend. Just last week it priced $525m of bonds secured a new drilling ship; this week it returned with a $1.175bn 8.75% SSN deal, backed by a set of offshore rigs. The deal refinances four outstanding SSNs coming due in 2024 and 2025.

“The timing was unexpected, but I think last week's deal went so well that they decided to accelerate the deal to take advantage of that demand, low rates and the tight spreads,” a portfolio manager said.

Oil and gas storage company Crestwood, environmental energy services company Clean Harbors, and pipeline operator Genesis Energy also issued debt this week with relatively minimal new issue concessions.

It wasn’t all plain sailing in bonds, though. A pulled deal from Rayonier Advanced Materials showed that the cost of borrowing (which is still historically high despite the recent rally) may still deter some of the more opportunistic deals from hitting the market.

The chemicals producer — a sector that has been under tough earnings pressure of late — was looking to raise $335m to refinance 5.5% notes due in June 2024. Sources said investors were pushing for a double-digit coupon, and the company ultimately decided it wasn’t ok with that.

“It’s a very cyclical name, and the margins are tough,” said one analyst of Rayonier. “They have until 2024 so they’re not in a rush. They were being opportunistic.”

Loans take it slow

The stronger high yield bond market is undoubtedly positive, but the jury is still out on the overall health of the leveraged loan market.

So far this year, things have been slow to get going. This is somewhat natural given the longer lead time for loan syndications versus bonds, but it’s also a reflection of some tougher technical pressures for the floating rate asset class.

“There’s some tiki-taki amendment and add-on type stuff, but it’s not a huge pipeline,” said one buysider. “But there’s also people getting in touch about potential stuff in the pipeline, without fully committing. The way I am interpreting that is they are testing the market.”

Borrowers seeking to amend and extend their existing loans this week included waste management company GFL Environmental and French telecom issuer Altice.

IntraFi also launched a second lien loan amendment, after first lien lenders approved a change that would allow Warburg Pincus to take a majority stake without triggering a change-of-control redemption.

Alongside the amend-and-extend activity, some new money deals are also starting to trickle through.

Banks came out with an $825m TLB to fund Stonepeak’s acquisition of Intrado’s safety business, as well as a new $500m TLB due 2030 for WhiteWater Whistler, to fund I Squared Capital’s acquisition of a 62.5% equity stake in the Gulf Coast Whistler Pipeline.

Meanwhile, accounting firm EisnerAmper announced a $130m term loan add-on to fund acquisitions. The borrower is no stranger to the loan market — here’s our coverage from its last debt raise last year, when lenders began to raise concerns about staff attrition.

Milkshake

Still, private credit remains an attractive alternative for speedy execution of LBO or acquisition financing in this environment.

Butterfly Equity’s acquisition of Milk Specialties is a case in point — we reported earlier this week, that the sponsor tapped private credit to fund the deal.

That helps the company close the deal fast; the acquisition was announced only a few weeks ago, on 23 December. That followed a drawn-out auction process, which began back in May 2022 but initially encountered lackluster interest.

Competition for private deals (which is already quite intense) is likely to get tougher from here, especially with the likes of JPMorgan muscling into the asset class with a $10bn warchest and other names like Audax continuing to raise giant funds.

We discussed the outlook for private credit, alongside a bunch of other stuff, for this week’s episode of our Cloud 9fin podcast. Check it out here, and if you’re interested in being on the podcast yourself, get in touch — our email addresses are next to our bylines.