Americas Primary Weekly
HY Market Takes Breather During Short Week as Investors Wait for Fed’s Next Move
Fri 02/23/2024 16:01 PM
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The high-yield market slowed down during the shorter week following the Presidents Day holiday on Monday, with six deals pricing for a total of $4.9 billion-equivalent. The deceleration comes after a string of reports pointing toward stronger-than-expected hiring and inflation for the month of January, which have caused investors to reevaluate their expectations for when rate cuts will start. The yields for the five-year and 10-year Treasury both closed yesterday, Thursday, Feb. 22, at 4.3%, their highest levels in almost three months.
Minutes of the late January Federal Reserve meeting, released this week, show that central bank officials are more concerned about cutting rates too soon than keeping them high for too long, with “most participants” noting the risks of cutting rates too quickly and only “a couple of participants” noting the risks of maintaining a restrictive monetary policy for too long.
Even though Fed officials believe that rates are “likely” at their peak for this cycle, they remain “highly attentive to inflation risks.” Put differently, the Fed is signaling that it is in no hurry to lower rates, even if it were to negatively affect short-term growth, as long as inflation remains persistently high. Robust labor markets support this view.
This sentiment has been reflected in risk appetite, with four of this week’s new issues carrying double-B ratings. Of the single-B rated credits to come to market - for Tallgrass Energy and First Quantum - both offered some measure of collateral, even if First Quantum’s new second lien notes have relatively poor guarantor coverage and are temporally subordinated to the group’s 2027 unsecured notes.
Quotes for this week’s new issues are shown below:
High-Yield Issuance Summaries
The biggest deal to price this week was First Quantum’s $1.6 billion offering of five-year second lien notes. The deal priced at par to yield 9.375% on Thursday, a day after it was announced. Proceeds from the B rated notes will be used, along with an equity offering, to redeem the group’s unsecured notes due in 2025 and 2026, as well as for general corporate purposes. Reorg’s financial analysis on the deal can be found HERE and our covenant analysis HERE.
Avis Budget’s €600 million offering, upsized from €400 million, of five-year 7% senior unsecured notes priced at par on Wednesday, Feb. 21. Proceeds from the B1/BB- deal will be used to redeem the company’s 4.75% senior notes due 2026 and for general corporate purposes. Reorg’s financial analysis on the deal can be found HERE and our covenant analysis HERE.
Goeasy Ltd.’s $400 million drive-by offering priced on Tuesday, Feb. 20. The senior unsecured notes were priced at par and have a coupon of 7.625%. Proceeds from the five-year Ba3/BB- notes will be used to partially repay indebtedness under the company’s secured facilities and for general corporate purposes. Reorg’s covenant analysis can be found HERE.
Other deals that priced this week include Royal Caribbean’s $1.25 billion drive-by offering of 6.25% senior unsecured notes due 2032, Equitrans Midstream Corp.’s $600 million drive-by offering of 6.375% senior unsecured notes due 2029 and Tallgrass Energy Partners’ $400 million offering of five-year 9% senior unsecured notes due 2029.
The calendar is shown below:
Covenant Loan Coverage
In the primary loan markets, we completed document reviews of the term sheets and draft credit agreements for Triton Water, Tallgrass Energy, One Toronto Gaming, Blackhawk Network, Rosen Group and Cotiviti.
To see our analyses of these documents or to talk to one of our legal analysts, click HERE. You can get access to an analysis if you have a copy of the applicable credit agreement.
Excel Download
The high-yield market slowed down during the shorter week following the Presidents Day holiday on Monday, with six deals pricing for a total of $4.9 billion-equivalent. The deceleration comes after a string of reports pointing toward stronger-than-expected hiring and inflation for the month of January, which have caused investors to reevaluate their expectations for when rate cuts will start. The yields for the five-year and 10-year Treasury both closed yesterday, Thursday, Feb. 22, at 4.3%, their highest levels in almost three months.
Minutes of the late January Federal Reserve meeting, released this week, show that central bank officials are more concerned about cutting rates too soon than keeping them high for too long, with “most participants” noting the risks of cutting rates too quickly and only “a couple of participants” noting the risks of maintaining a restrictive monetary policy for too long.
Even though Fed officials believe that rates are “likely” at their peak for this cycle, they remain “highly attentive to inflation risks.” Put differently, the Fed is signaling that it is in no hurry to lower rates, even if it were to negatively affect short-term growth, as long as inflation remains persistently high. Robust labor markets support this view.
This sentiment has been reflected in risk appetite, with four of this week’s new issues carrying double-B ratings. Of the single-B rated credits to come to market - for Tallgrass Energy and First Quantum - both offered some measure of collateral, even if First Quantum’s new second lien notes have relatively poor guarantor coverage and are temporally subordinated to the group’s 2027 unsecured notes.
Quotes for this week’s new issues are shown below:
High-Yield Issuance Summaries
The biggest deal to price this week was First Quantum’s $1.6 billion offering of five-year second lien notes. The deal priced at par to yield 9.375% on Thursday, a day after it was announced. Proceeds from the B rated notes will be used, along with an equity offering, to redeem the group’s unsecured notes due in 2025 and 2026, as well as for general corporate purposes. Reorg’s financial analysis on the deal can be found HERE and our covenant analysis HERE.
Avis Budget’s €600 million offering, upsized from €400 million, of five-year 7% senior unsecured notes priced at par on Wednesday, Feb. 21. Proceeds from the B1/BB- deal will be used to redeem the company’s 4.75% senior notes due 2026 and for general corporate purposes. Reorg’s financial analysis on the deal can be found HERE and our covenant analysis HERE.
Goeasy Ltd.’s $400 million drive-by offering priced on Tuesday, Feb. 20. The senior unsecured notes were priced at par and have a coupon of 7.625%. Proceeds from the five-year Ba3/BB- notes will be used to partially repay indebtedness under the company’s secured facilities and for general corporate purposes. Reorg’s covenant analysis can be found HERE.
Other deals that priced this week include Royal Caribbean’s $1.25 billion drive-by offering of 6.25% senior unsecured notes due 2032, Equitrans Midstream Corp.’s $600 million drive-by offering of 6.375% senior unsecured notes due 2029 and Tallgrass Energy Partners’ $400 million offering of five-year 9% senior unsecured notes due 2029.
The calendar is shown below:
(Click HERE to enlarge.)
Covenant Loan Coverage
In the primary loan markets, we completed document reviews of the term sheets and draft credit agreements for Triton Water, Tallgrass Energy, One Toronto Gaming, Blackhawk Network, Rosen Group and Cotiviti.
To see our analyses of these documents or to talk to one of our legal analysts, click HERE. You can get access to an analysis if you have a copy of the applicable credit agreement.
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