--David Bell

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 week.

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.


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 note.

"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 said.

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