Indigo, Shelf recap deals underscore oil’s high yield resurgence

Newly minted bonds from Indigo Natural Resources and Shelf Drilling highlight a new burst of momentum for oil & gas names hitting the market, as crude price optimism opens the capital markets to some lower-quality, lesser-known borrowers to refinance or recapitalize their balance sheets, according to multiply energy analysts.

With the crude price downturn still a recent memory, privately held Indigo on Friday (2 February) priced a USD 650m 6.875% senior unsecured note due 2026 at par. The JPMorgan-led deal funds the redemption of preferred equity units, takes out a USD 150m 8.75% senior note at Indigo Haynesville, and repays borrowings under two revolving credit facilities with USD 245m outstanding as of 30 September, the sources noted. Indigo is levered 3.6x based on preliminary results for the quarter ended 31 December, based on USD 965m in debt and USD 269m in LTM EBITDA. The notes traded on Friday at 100.625 for a 6.642% yield, according to MarketAxess.

“It feels like we’re going a rung or two lower in terms of quality and renown,” said an energy buysider. “It feels like the rush is on again.”

As a Haynesville operator, Indigo’s B+/B3 rated bonds are comparable to Covey Park’s B/B3-rated USD 450m 7.5% senior unsecured note due 2025 priced last April. The Covey Park notes last traded yesterday at 104.779 for a slightly tighter 6.414% yield, according to MarketAxess.

And this past October, another Haynesville-focused company, Vine Oil & Gas, came to the market with a CCC+/Caa2 rated USD 530m 8.75% senior unsecured bond due April 2023. With bondholders below a term loan facility, revolver borrowings and TLB debt, Vine had to tighten the covenant package and widen initial pricing.

The Vine bonds last traded yesterday at 101 to yield 8.48%.

The deals from Indigo and other Haynesville players have put buysiders on the lookout for a deal from Comstock Resources. The company previously telegraphed that, in the new price environment, the borrower would attempt a global refi with an unsecured deal and a new revolver.

“One thing that has changed is we’re hearing a lot from many energy companies that are trying to live within cash flows,” said a buysider, referring to the many years in which those same oil & gas companies willingly burned cash in order expand drilling operations.

“Whether that discipline holds or not will determine their access to markets,” he said, adding that both equity and debtholders don’t want to see big cash flow deficits, since investors haven’t forgotten about the last three years of pain.

The prospect of driller discipline has helped buoy a sustained rise in oil prices, with WTI crude trading today at USD 64.79 per barrel, compared to lows in the low-40s in June of last year.

For its part, Shelf Drilling, a global jack-up contractor with 39 rigs in 12 different countries, brought a USD 600m 8.25% senior unsecured bond due 2025, and was able to price on the tight end of guidance. The B-/B2 rated deal was upsized from its original USD 550m target, with proceeds paying back its USD 30m 8.625% second lien stub note due in December along with its USD 500m 9.5% second lien notes due 2020, issued last year. The bond traded Friday at 101 yielding 8.037%.

Another deal that received particular attention was Berry Petroleum’s USD 350m senior unsecured notes due 2026, which priced Friday at 7%. Berry, whose assets are California-based, emerged from bankruptcy in 2013 as part of Linn Energy’s Chapter 11 proceedings.

Proceeds from the B+/B3 rated Berry deal will primarily pay down their RBL facility, according to a source close to the situation.

“Going from bankruptcy to a six-handle unsecured deal: that sort of tells you where we’re at,” said a buysider.

Berry’s bond traded last at 100.125 to yield 7%.

Meanwhile, Moss Creek’s USD 650m 7.5% unsecured notes due 2026, priced on 12 January, continue to trade well. The B+/B3 rated notes changed hands at 103.25 yielding 6.825% on 2 February, according to MarketAxess. The issuer tightened covenants after investors expressed concerns related to the company’s Chinese ownership as well the broader sector.

However, one deal from last week, a BB-/Caa1 rated five-year USD 325m second lien note for EnVen, is stretching into this week, sources noted. Whispers circulated last week in the 9.5%-10% range for the JPMorgan-led deal, buysiders said.

2018 Debtwire

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