High yield floodgates open with deluge of drive-bys on the busiest new issue day since September

Investors flocked to drive-by bond deals today, setting up one of the busiest days for high yield new issuance since last fall, according to several buyside and sellside sources. After months of drought amidst broader market volatility and geopolitical uncertainty, the day started with bond deal announcements from MGM Growth PropertiesTenet HealthcareAlbertsons Companies and Vistra Energy.

Including several upsizes, the four high yield issuers are poised to price USD 4.15bn in deals today. The last time that four drive-bys priced in one day was 14 September, and the most recent date with a volume total exceeding today’s was on 18 September, with USD 5.75bn in issuance, according to Debtwire data.

“Everybody’s jumping at the chance to invest while they can, especially in these higher-quality, well-known issuers,” said a buysider.

“The bigger, anticipated M&A deals are still going to come. I don’t think this has any impact on that. It’s not a negative to see this many deals occur, but not exactly an indication that those deals will come sooner. At this point, it’s sort of just investors’ tails wagging a bit,” the buysider added.

High yield inflows totaled about USD 3.2bn for the week ended 16 January, according to Lipper data. “These deals are a function of the inflows. The more money that comes, the more issuers are willing to test the markets, the more investors are willing to invest,” the trader said.

Grocery chain Albertsons priced an upsized offering of USD 600m senior unsecured notes due 2026 at 7.5% and par, in line with tightened price talk at 7.5%, according to two of the sources. The B3/B+ notes fund the redemption of outstanding 2019 notes and general corporate purposes, according to company documents.

Albertsons’ pro forma leverage totals roughly 4x, based on USD 10.97bn of total debt and USD 2.73bn of LTM adjusted EBITDA, according to the company presentation. The company is expected to generate USD 680m in free cash flow in fiscal year 2019, based on USD 2.7bn of LTM adjusted EBITDA, USD 1.4bn of LTM capex and USD 620 of interest expense.

Albertsons’ existing USD 1.25bn 6.625% senior unsecured notes due 2024 traded today at 98.75 to yield 6.904%, down a half-point from trades at 99.25 to yield 6.791% on Friday (18 January), but up from trades in the 93 context at the beginning of the year, according to MarketAxess.

Vistra Energy’s upsized USD 1.3bn senior unsecured notes due 2027 priced at 5.625% and par, at the midpoint of official price talk in the 5.5%-5.75% range, according to two buysiders. Proceeds will fund the repurchase or redemption of the company’s USD 1.75bn 7.375% senior unsecured notes due 2022.

Vistra – the renamed Texas Competitive Electric Holdings – is levered 3.82x pro forma, based on USD 11.912bn of total debt and USD 3.114bn of LTM adjusted EBITDA at 30 September.

The company last tapped the market in August 2018 with a USD 1bn 5.5% senior unsecured notes offering due 2026 to fund a tender offer for notes outstanding at the time. The 5.5% notes last traded today at 101 to yield 5.251%, in line with recent levels, but up from trades in the 96/97 context at the beginning of the year, according to MarketAxess.

MGM Growth Properties priced an upsized USD 750m senior unsecured note due 2027 at 5.75% and par, the tight end of official talk in the 5.75%-5.875% range. Proceeds from the deal pay down the company’s revolver and fund general corporate purposes, according to deal documents.

The company’s existing USD 500m 4.5% senior unsecured notes due 2026 traded today at 95 to yield 5.307%, in line with recent levels, but up from trades in the 90/91 context at the beginning of the year, according to MarketAxess.

After HCA Healthcare’s blowout drive-by last week, peer hospital operator Tenet Healthcare is primed to follow suit with a USD 1.5bn second lien note due 2027 – upsized from USD 750m originally, the sources said.

The company is poised to price the offering at 6.25%, tight of circulated talk in the 6.375% area and initial whispers of 6.5%-6.75%, two of the sources said. Proceeds are slated to refinance the company’s outstanding 5.5% senior unsecured notes due 2019 and its 6.75% senior unsecured notes due 2020, according to company documents.

The book for the USD 750m deal was several times oversubscribed as of this afternoon, and the upsize could allow Tenet to fund the redemption of its remaining 2020 and 2022 notes, two buysiders said.

Pro forma, the company is levered 6.15x, based on USD 15.542bn of total debt and USD 2.528bn of LTM 30 September adjusted EBITDA, according to deal documents.

HCA’s newly-issued USD 1bn 5.875% senior unsecured noted due 2029 traded today at 101.375 to yield 5.686%, according to MarketAxess.

2019 Debtwire

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