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Investors screamed “drill baby drill” this week as oil and gas producers Transocean, W&T Offshore and Venture Global LNG found a gusher of demand in the high yield bond market.

The largest of the three deals, a $1bn issue of SSNs due 2030 from Venture Global, priced at 6.25% — in from initial talk of 6.375% area.

Price progression was similarly strong for Transocean and W&T (although the latter came significantly wider), as they made the most of a turnaround in sentiment towards the energy sector and investors’ large January cash balances.

Energy provides a good launchpad for 2023 issuance: it’s a capital-intensive sector and issuers may be looking to take advantage of a recent decline in the sky-high borrowing costs that became the norm in credit markets last year.

“We are starting the year with a 7.5%-8% dividend yield for loans and a 8%-9% YTW for high yield bonds, so that’s an attractive starting point for both asset classes,” said Jeffrey Bakalar, head of leveraged credit at Voya. “The question is, will investors be confident enough to take advantage of that.”

Investors ended 2022 thinking a recession would kill consumer spending and corporate earnings in the new year, but recent data around jobs and inflation are giving cause to be more optimistic.

Ken Leech, chief investment officer at Western Asset Management, said strong technicals such as a limited near-term maturity wall and strong loan interest coverage should give investors confidence.

High interest coverage in loans (via Western Asset Management)

“The fear that the market has is really based on the macro overhang and the prospects, not the current debt metrics,” Leech said. “The market is pricing in a degree of pessimism, which is completely out of line with current metrics.”

Still, the overhang of recession fear seems to be suppressing activity in the broader primary market.

These recession fears have largely kept loan issuance at bay, but issuers such as telecommunications networking equipment supplier Ciena, automotive lubricants provider RelaDyne and educational provider Nord Anglia are testing the market.

Nord Anglia was one of several amend-and-extend deals that arrangers premarketed earlier this year on both sides of the Atlantic. As well as extending the maturity on its euro term loan, it is also raising $500m of new money — click here to request our Legals QuickTake on the deal.

Real estate group Cushman & Wakefield also joined the pipeline on Friday with a $2.6bn TLB amend-and-extend deal. Bankers told us of several other A&E or add-on syndications that are set to launch in the coming days; a couple of buyout financings are also waiting in the wings.

One loan investor said these deals offered decent value. With retail funds exiting the asset class and a high proportion of CLOs exiting their reinvestment period, he said the technical backdrop was supportive for investors.

“Retail flows are flat, and while the CLO market is alive, it isn’t at the pace it was in previous years,” he said. “The issues that are coming now are going to look historically quite attractive.”

Still, the loan primary market remains quiet for now and some issuers have exited the market. HCA Healthcare for example said last week it paid down its existing $492.5m TLB facility by tapping its ABL credit facility.

That redemption will leave a large number of loan funds with cash to put to work, and few places to put it. This dynamic may benefit IntraFi Networks, which is offering holders of its TLB a 10bps fee for an amendment that paves the way for Warburg Pincus to take a majority stake.

On the private side of the market, borrowers are getting creative to try and mitigate the high cost of borrowing in today’s environment.

Privately owned insurance company Integrity Marketing, for example, ran into investor opposition towards the end of last year as it proposed a debt raise to fund an acquisition that appeared to circumvent MFN protection.

Ultimately, lenders did each other a solid: as we reported earlier this week, the borrower downsized the deal and made tweaks in response to investor pushback. Existing lenders got a graded coupon bump, depending on which add-on tranche they held.

Meanwhile, investors are getting jittery on highly leveraged companies that have upcoming maturities.

Marketing and sales data company Data Axle has hired Houlihan Lokey to help address its upcoming debt, after investors reportedly organized with Ropes & Gray as legal counsel. The borrower has been pitching itself to private credit investors, sources said.

Another name that investors are keeping a close eye on is Finastra. The software company reported higher earnings for its most recent fiscal quarter, but lenders are hoping for more clarity on how the company plans to tackle its upcoming 2024 loan maturity.

The JP Morgan Healthcare Conference this week features presentations from at least 13 high yield credits.

One portfolio manager said the conference tends to be more equity-focused, but that more high yield investors were attending this year — even if borrowers typically don’t tend to grant them an audience.

Debt investors were rewarded with some news around potential issuance, including the announcement of a new bond raise for Sotera Health that is expected to launch in the first half of the year.

Sotera will use the added funds to pay for a $408m legal settlement, closing some 870 cases in Illinois that claimed the company’s facilities caused cancer in nearby residents.

And on Wednesday, Israel-based pharmaceutical company Teva also announced plans to tap the capital markets this year. Teva is dealing with its own settlements related to the opioid crisis, but this upcoming debt raise will tackle maturities in 2025, 2026 and 2027.

Eli Kalif, the company’s CFO, said during a presentation at the conference that Teva would raise some $3.5bn-$4bn this year in order to address those refi needs. He added that it was considering dual-currency issuance, split 40/60 across euros and US dollars.

Through the third quarter of last year, Teva reduced its net debt to $19bn, compared to $34bn back in 2017. But the company still has futher to go if it wants to keep investing in organic growth opportunities.

“We have debt, and that gives us some capital constraints,” said Richard Francis, who assumed the role of president and CEO of Teva at the start of the new year. “But as you saw, it’s heading in the right direction.”

“The focus for me is to make sure, with the management team, we can come back to the markets mid-year with a clearer idea of the future of Teva, where it's heading and the specifics of how to get there.”

Stay tuned for more new-issue news as the market starts to crank back into action. We’ll leave you with one more thing: middle-market stalwart Antares Capital is getting into the broadly syndicated loan space. Check out our interview with its latest hire here.

Ex-Goldman bankers encounter frail job market (Reuters)

Family offices bypass PE funds to make bets directly (Bloomberg)

Subway explores sale with potential $10bn valuation (WSJ)

FTX pre-mortem overview (SBF’s Substack)

The coolest rock show in Ann Arbor — where everyone is over 65 (NYT)

Jeff Beck, guitarist with a chapter in rock history, dies at 78 (NYT)

Wall Street’s new ESG moneymaker promises conservation — with a catch (Bloomberg)

Company created by Citrix-TIBCO merger lays off 15% of staff (TechCrunch)

JPMorgan accuses Morgan Stanley defector of poaching 32 clients (Bloomberg)

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