Talen Energy Supply launched a $400 million
refinancing on Tuesday in a wobbly high yield bond market that
has recently seen three energy sector issuances pulled,
including one from NRG Energy.
After a long rally in U.S. high yield credit, concerns over
tax reform, weak earnings and merger struggles sparked a $2
billion outflow from funds tracking the sector last week.
Two energy issuers pulled deals last week, including NRG,
but that did not stop three energy issuers stepping back into
the market on Monday.
Talen followed them into the breach on Tuesday, announcing
its $400 million senior unsecured eight-year non-call-three
offering as part of a liability management exercise alongside a
tender for existing notes.
Morgan Stanley is the sole bookrunner on
Talen’s deal and an investor meeting is scheduled
for 10:30am with a view to pricing it today.
Spreads in the high yield sector were 24 basis points wider
over the course of last week, closing at 376 bps over
Treasurys, according to research firm
CreditSights. By Friday, investors had pulled
over $2 billion from exchange-traded funds that track the U.S.
high yield sector.
The shift in market sentiment was strong enough to prompt
two issuers to shelve plans to issue new debt during the
NRG Energy and Canyon Resource Holdings
pulled planned high yield bond offerings on Thursday and
Friday, with market volatility understood to be behind the
decision of both companies to hold off. The market had not seen
a pulled deal since June this year.
"I think they were expected to price the same day as they
launched, but then they weren’t comfortable with
the levels that they were going to get," said one leveraged
finance banker away from the deal, referring to the NRG trade.
Given NRG is a regular issuer he said he would expect them to
return to the market soon.
NRG had mandated Citi,
Crédit Agricole and Deutsche
Bank for the deal, which was announced as a $780
million 10.25-year non-call-five senior bond to fund a tender
offer on Nov. 9.
High yield analysts at Bank of America Merrill
Lynch blamed "several meaningful and yet only loosely
related events" for the volatility, with the failure of the
Sprint and T-Mobile merger,
the ratings downgrade of pharmaceutical company
Teva, and opposition from the U.S. department
of justice to a merger between AT&T and
Time Warner as reasons why the high yield
market has spluttered this week.
The proposed tax reform plans—which could cut the
carried interest deduction for private equity firms—as
well as a series of weak third quarter earnings reports have
also been cited as reasons behind the market hiccup.
The market sell off was not restricted to high
yield—by Thursday, the analysts pointed out that the
move in high yield was broadly in line with similar drops in
the S&P 500.
THIRD PULLED DEAL
Though the two issuers that pulled deals last week were both
from the energy sector, that hasn’t stopped energy
and oil companies from announcing new deals this week.
Resolute Energy Corp. was in the market
with a $550 million eight-year non-call-three senior offering
on Monday, but it too pulled its deal late the same day.
Upstream gas company Hess
Infrastructure was meanwhile looking to pay down
debt and fund an equity distribution to sponsors through the
issuance of $800 million of 8.25-year 3.25-non-call senior
notes and oil producer Centennial Resource
announced a $350 million 8.2-year non-call-3.25 senior
"Deals are pricing straight away and I would still expect
issuers of good quality to get deals away this week," said the
leveraged finance banker. But spreads could start to widen, he