This month in the high yield bond market: Energy issuance, returns blossom in rangebound market

High-yield issuance was $35.5 billion in May, surpassing initial estimates of $25-30 billion, but representing a small $1.8 billion decline month-over-month and falling short of the $37 billion total from May 2014 and $43.5 billion total from May 2013, LCD data shows.

high yield bond issuance

The high-yield market was generally rangebound in May, despite volatility in stocks and Treasuries mid-month and a net retail cash outflow of $2 billion from the asset class for the month, according to Lipper, with one week of inflows flanked by three weeks of outflows.

After spiking to 2.28% mid-month, the 10-year Treasury yield fell back to 2.12% at the end of the month, although yields have been rising in early June. By comparison, the yield-to-worst on the S&P U.S. Issued High-Yield Index generally held in a tight range at 5.90-5.99%, only spiking to 6.02% in mid-May and ending the month lower at 5.87%. The option adjusted spread was similarly stable, ending the month at T+463, from T+461 at the start of May. Bankers said investors were constructive on the new-issue market despite the peripheral volatility, with plenty of cash stockpiled in preparation for the busy month.


Large deals anchoring May volume included a $2.1 billion M&A transaction from The Chemours Company, a $2 billion, two-part M&A deal for CommScopeAltice/Suddenlink’s $1.72 billion three-part issue, and Spectrum Brands’ $1 billion issue. Billion-dollar-plus refinancing deals were placed by Burger KingHCAAlly FinancialEnergy Transfer EquityMarkWest Energy, and SandRidge Energy.

Energy issuers came out of the woodwork to post 25% of total issuance, with companies bringing both short-dated secured offerings and longer-dated senior notes, and demand was strong. To be sure, market participants are diving back into the sector as it outperforms the broad index, marking a turnaround from the end of last year. According to S&P, the energy sector has returned 6.23% in 2015 through the end of May, versus 4.08% for the U.S. issued high-yield index.

A few of the energy deals in May were short-dated secured issues targeting the repayment of RC debt. Participants say these transactions are viewed as transitional debt instruments as energy companies seek to shore up balance sheets until industry conditions turn more positive. Indeed, bankers say to expect more first- and second-lien secured energy offerings targeting the reduction of revolver debt as companies face extra liquidity pressure amid the current re-determination period.

The average bid of LCD’s flow-name sample was up modestly on the month, gaining 11 bps to 101.96% of par on May 28, from 101.85% of par on April 30. The reading of 101.96 on May 28 set the average option-adjusted yield to worst at 6.21% and spread to worst at T+469, down from 6.23% and T+474 at the end of April.

The S&P U.S. Issued High Yield Corporate Bond Index closed on May 30 at a weighted-average price of 100.58, offering a yield-to-worst of 5.87%, or T+463. By comparison, the price was 100.85 at the end of April, offering a yield to worst of 5.90%, or T+470. Year-to-date returns on the index advanced to 4.08%, versus 3.75% at the end of April. The month-over-month return was 0.32%, a drop from 1.13% in April, but outperforming March’s negative 0.47%.

Just one deal was scrapped during the month. World Acceptance Corp. postponed its $250 million offering of senior notes mid-month, according to a company press release. Talk on the offering of five-year senior notes was set at 9% area after the call period was lengthened by a year, to non-call three, but the company pulled the issue, saying the deal was opportunistic and that it could return when terms are more favorable in the future. Interestingly, the company’s CEO A. Alexander McLean is stepping down this week.

Refinancing activity shot up in May, to 62% of total use of proceeds, from 54% in both April and March. M&A also advanced month-over-month, representing 29% of issuance, up from 26% in April but below March’s 32%. May’s M&A results include 21% from acquisitions and 7.6% from spin-offs. LBO issuance ended the month at just over 3%, up from 1.6% in April. While M&A and refinancings took larger slices of the pie, corporate purposes accounted for just 1% of total use of proceeds, down from 16% in April and 6% in March. Combined recapitalizations, which includes general recapitalizations, dividends, and stock repurchases, made up roughly 5%, a 3% uptick from April but down from 8% in March.

In terms of sector, Oil & Gas led by a huge margin with 25% of total issuance for the month. This was followed by Services & Leasing, at 13%, and Chemicals, at 9%. Healthcare, which led in April, at 17.5%, represented just under 7% of total issuance.

Indeed, sixteen Oil & Gas issuers priced deals in May for a combined $9 billion, the largest of which were MarkWest Energy, SandRidge Energy, and Energy Transfer Equity. By comparison, seven Oil & Gas deals were priced in April, for a combined $3 billion, LCD data shows.

Within the credit spectrum, BB issuance knocked single-B issuance out of the lead spot, which it had held for five months. BB paper amounted to 37% of supply, up 10% month-over-month, followed by single-B issuance, at 32%, up 2% from April. Split-rated BB/B volume represented 14% of issuance, down from 23% in April. CCC and B/CCC issuance was basically unchanged from April, at 6.5% and just over 7% of total issuance, respectively.

Looking ahead, the shadow calendar holds about $30 billion of volume, with Charter Communications adding an anticipated $13.8 billion of secured and senior debt after the company announced its $56 billion acquisition of Time Warner Cable, although it is expected that the $6 billion of secured debt will be assigned investment-grade ratings. Frontier Communications is also on the shadow calendar with roughly $11.6 billion as part of its acquisition of some of Verizon Communications’ wireline operations. Timing is undetermined.

For June, bankers estimate $35-40 billion of issuance, with this week’s calendar already at $8.4 billion from 14 issuers, including LBO supply from Life Time Fitness and Informatica, along with M&A offerings from Tenet Healthcare and NXP B.V. Bankers expect M&A supply to continue to grow, although LBO volume is not expected to pick up meaningfully.

The U.S. trailing-12-month speculative-grade corporate default rate is estimated to have increased to 2.0% in May, from 1.8% in April, according to S&P Global Fixed Income Research (S&P GFIR). The current observation represents the highest level in 17 months, or since the rate was at 2.2% in December 2013.

There were eight corporate defaults in May, and all were public. Magnetation and Patriot Coal filed for bankruptcy; Colt Defense and Tunica-Biloxi Gaming Authority/Paragon Casino skipped bond coupons; Warren Resources and Midstates Petroleum inked sub-par bond exchanges; and SandRidge Energy and Halcon Resources completed bond-for-equity exchanges, also below par.

The S&P GFIR forecast for the U.S. speculative-grade default rate is for a modest increase, to 2.5% by December 2015 and 2.8% by March 2016.

Looking ahead, the market awaits word of any development out of American Eagle Energy, which skipped its first coupon ever on March 1, meaning the 30-day grace has long since passed. KKR-controlled Samson Resources has warned that a Chapter 11 reorganization could be “expeditious,” while Colt Defense has netted funding for a prepackaged bankruptcy just as it extended for a fourth time a deeply distressed exchange offer on its $250 million issue of 8.75% unsecured notes. Meanwhile, rare-earth-minerals company Molycorp skipped its June 1 coupon amid restructuring talks reportedly with a bondholder group led by JHL Capital Group. – Joy Ferguson/Matt Fuller


Flextronics $500M bond deal sales pitch focuses on company’s rising-star trajectory

Flextronics International (Nasdaq: FLEX) is shopping a $500 million offering of split-rated 10-year senior notes, following recent ratings actions that put the company on track to attain a full investment-grade ratings profile, sources said. The company today announced the offering as 144A/Reg S with registration rights, with proceeds earmarked for general corporate purposes, according to a company statement.

San Jose, Calif.-based Flextronics provides electronic manufacturing services (EMS), including design, manufacturing, and supply chain services and solutions to original equipment manufacturers worldwide.

In a rising-star development, Standard & Poor’s Ratings Services on May 20 raised the issuer’s credit rating by one notch, to BBB-, with a resulting revision to a stable outlook, from the previous positive assessment.

“The upgrade reflects Flextronics’ improving mix of faster-growing, more profitable end-markets, and our expectation that the company intends to maintain a financial profile consistent with its investment-grade rating,” S&P stated in the upgrade rationale.

Subsequently, Moody’s on May 29 revised its outlook on the company to positive, from stable, noting the company’s position as the second-largest EMS provider in the world by revenues. “Flextronics will benefit as the industry evolves from contract manufacturing to involve full supply chain services and greater design and build collaboration with its customers,” analysts said. “These trends should serve to minimize the enduring cyclical volatility in the EMS sector, resulting from limited demand visibility, relatively high customer concentration and high fixed costs associated with maintaining manufacturing operations to serve communications and computing customers across the globe.”

Fitch breaks the current ratings-threshold tie with an investment-grade BBB- rating and stable outlook.

S&P’s upgrade rationale acknowledged declines from peak leverage above 3x as of September 2013, to the high-1x area as of the end of March 2015, even as the company is expected to return at least 50% of free cash flow to shareholders. For reference, the company bought back $416 million of its shares over the 12 months through March this year, down from $475 million over the year-earlier period, according to S&P Capital IQ.

Flextronics last placed notes in February 2013, when it inked – under a junk-leaning BB+/Ba1/BBB- profile – $1 billion of 144A senior notes in an even split across 4.625% seven-year notes due 2020 at T+325, and 5% 10-year notes due 2023 at T+302.

Initial whispers for today’s offering started in the high T+200s, which compares with reported trades yesterday in the outstanding 5% 2023 issue at G-spreads near 130 bps, according to MarketAxess.

Bookrunners are BAML and J.P. Morgan. – John Atkins


Speculative-grade bond defaults in May climb to highest since 2009, S&P report says

The eight speculative-grade corporate bond defaults in May marks the highest one-month count since nine defaults in October 2009, as companies remain challenged by volatility in the commodities markets, according to S&P Global Fixed Income Research (S&P GFIR).

Standard & Poor’s defines speculative-grade debt as having ratings of BB+ and lower.

The oil-and-gas sector leads with downgrades and defaults, but the number of downgrades across all sectors remains elevated. Indeed, downgrades during the month outnumbered upgrades by 35 to 12, according to S&P GFIR.

However, Diane Vazza, head of S&P GFIR tempered the data with the following statement: “Despite the increasingly negative rating actions for speculative-grade U.S. companies, we continue to see positive investor demand in the market; year-to-date issuance is up from last year, credit spreads narrowed slightly during the month, and total returns were modestly positive for the month.”

As for the eight defaults during the month, all were public. Magnetation and Patriot Coal filed for bankruptcy; Colt Defense and Tunica-Biloxi Gaming Authority/Paragon Casino skipped bond coupons; Warren Resources and Midstates Petroleum inked sub-par bond exchanges; and SandRidge Energy and Halcon Resources completed bond-for-equity exchanges, also below par.

With that, the U.S. trailing-12-month speculative-grade corporate default rate is estimated to have increased to 2.0% in May, from 1.8% in April, according to S&P GFIR. The current observation represents the highest level in 17 months, or since the rate was at 2.2% in December 2013.

The S&P GFIR forecast for the U.S. speculative-grade default rate is for a modest increase, to 2.5% by December 2015 and 2.8% by March 2016. Today’s report, titled “Defaults Rise As Downgrades Remained Elevated In May,” is available to subscribers of premium S&P GFIR content at the S&P Global Credit Portal.

For more information or data inquiries, please call S&P Client Services at (877) 772-5436. – Staff reports



Estee Lauder eyes rare deal to extend maturity schedule

The Estee Lauder Companies (NYSE: EL) today announced a $300 million, “no-grow” offering of 30-year senior bonds, marking just its second offering since 2008, and first in nearly three years. Proceeds will be used for general corporate purposes, which may include the repayment of commercial-paper (CP) borrowings, acquisitions, working capital, capital spending, and share buybacks, according to regulatory filings.

For reference, the company reported, as of May 28, $300 million of CP outstanding under its $1 billion CP program, up from $115 million at the end of March, filings show. Of note, the company reported no borrowings under its $1 billion senior unsecured revolving credit facility as of last week, after in the first quarter extending the revolver by one year, to July 15, 2020.

The infrequent issuer’s next long-term debt maturity is the $300 million of 5.55% senior notes due 2017, followed by $250 million of 2.35% senior notes due August 2022.

The 2022 issue dates to the company’s last tap of the debt markets in July 2012, when long-term rates were plunging to previously uncharted lows, and when it inked $500 million of notes across the 2.35% notes due 2022 at T+85 and 3.7% 30-year bonds due August 2042 at T+115.

The last reported trades in the 3.7% issue, in late April, were at date-adjusted levels in the T+130s, according to MarketAxess. Initial whispers for today’s long-bond issuer were reported in the T+145 area, suggesting a reoffer yield near 4.3%.

Active bookrunners for today’s offering are Citi and Goldman Sachs, along with passive bookrunners BAML and J.P. Morgan.

S&P and Moody’s maintain stable outlooks on the A+/A2 profile for the New York-based personal-products company. “Given Estee Lauder Cos. Inc.’s historically successful new product development and effective advertising, Standard & Poor’s Ratings Services expects the company will continue to have positive operating results and generate good cash flow, and to maintain credit metrics near current levels over the next one to two years,” the agency stated in June 2014. – John Atkins


Molycorp bonds edge higher, shares drop on news of missed bond interest payment

Molycorp bonds and shares moved in different directions today after the company announced its intent to enter the 30-day grace period on its first-lien notes after skipping June 1 coupon payments amid restructuring negotiations. The 10% first-lien notes due 2020 at issue rose three points, to 45/48, flat or without accrued interest, while MCP common shares dropped 11%, to $0.47 each, on the NYSE, according to sources and trade data.

The rare-earth-minerals concern today publicly announced its intent to skip the $32.5 million due to bondholders of its $650 million issue of first-lien notes and enter the standard 30-day grace. The paper, still currently CCC+/B3, was already quoted flat as of late last week heading into the coupon date, according to sources, with quotes 42/45 flat, versus trades in a 50 context earlier this month, data show.

“As previously disclosed, the company has retained financial and legal advisors to assist the company to restructure its debt. The company will use the grace period to continue to evaluate different options related to such debt restructuring,” according to the company statement.

Recall that press reports circulated three weeks ago that the company’s investor call was cancelled on account of restructuring discussions. Results showed the company’s twelfth consecutive quarterly loss and followed a going-concern warning in the prior quarter’s report. (See “Molycorp bonds, shares trade lower after 1Q report, call cancelled,” LCD News, May 7, 2015.

Restructuring negotiations are underway with a group of bondholders led by hedge fund JHL Capital Group and are being advised by Houlihan Lokey and Kramer Levin Naftalis & Frankel, according to Bloomberg News, citing unnamed sources. The bondholders put forth a restructuring proposal to the firm late last month with a DIP loan of up to $200 million and non-disclosure agreements were signed, according to the reports.

Molycorp is also negotiating with bondholders of its 3.25% convertible notes due 2016, led by Apollo Capital Management, to push out the maturity and convert it into equity, according to Bloomberg News.

As reported, the company, whose capital structure has come under pressure amid declining prices for rare earth minerals, in recent quarterly results said that depressed demand for certain products and the delayed ramp-up of operations at its Mountain Pass facility resulted in continued operating losses. These circumstances cast substantial doubt about its ability to meet its obligations as they come due, Molycorp said.

“If we are unable to execute our business plan and restructure our debt, we may not be able to continue as a going concern,” the company warned in an SEC filing in March (see “Molycorp bonds, shares fall on results, going concern warning,” LCD News, March 17, 2015.)

Molycorp also announced it has engaged Miller Buckfire and other advisors to assist it in a restructuring of its debt. – Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.


ETFs back away from high-yield bond funds this week, data shows

There was a net $111 million retail cash outflow from U.S. high-yield bond funds for the week ended May 27, according to Lipper. It dents the $907 million infusion last week, and today’s outflow is the fifth withdrawal over the past six weeks.

High Yield Fund Flows May 29 2015

However, take note it’s more than all related to the fast-money, market-timing, and market-hedging influence of the exchange-traded-fund segment. Indeed, this past week’s figures reflect an inflow of $41 million to mutual funds overwhelmed by an outflow of $152 million from ETFs.

Regardless of what that suggests about investor intent, it’s an outflow, but the trailing four-week average nonetheless moderates. The current observation is negative $510 million per week, the least in five weeks, from negative $697 million last week and negative $964 million two weeks ago. Recall that the latter was the largest in this measure over 16 weeks at the time.

The inflow modestly draws down the full-year reading to inflows of $8.4 billion, with 35% ETF-related. Last year, after the first 21 weeks, there was a net $4.7 billion inflow, with 16% related to ETFs.

The change due to market conditions this past week was positive $275 million, the most in six weeks. Still, it’s essentially nil, at just 0.1%, against total assets, which were $208.8 billion at the end of the observation period. ETFs account for $40.6 billion of total assets, or roughly 19% of the sum. – Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.


Altice/Suddenlink sets guidance on $1.72B, three-part M&A bond offering

Altice/Suddenlink has set guidance on its $1.72 billion, three-part notes offering as part of Altice’s majority-stake acquisition of Suddenlink, with joint bookrunners J.P. Morgan and BNP Paribas, according to sources. Books will close at 1:00 p.m. EDT, with pricing to follow, sources relay.

The $1.1 billion of eight-year (non-call three) first-lien senior secured notes is guided at 5.25-5.5%, with ratings set at BB-/Ba3 and issued via Altice US Fin I Corp. Another $300 million of 10-year (non-call five) senior notes is talked at the 7.25% area, issued via US Fin II Corp, with ratings of B-/Caa1. A third $320 million tranche of 10-year (non-call five) senior holdco notes is guided at 7.25% at a discount to yield 7.5%, issued by Altice US Fin S.A., and rated CCC+ by S&P, sources indicate.

Altice last Wednesday announced that it will acquire 70% of Suddenlink from BC Partners, CPP Investment Board, and Suddenlink management, with BC Partners and CPP Investment Board retaining a 30% stake. The purchase values Suddenlink at an enterprise value of $9.1 billion and 7.6x synergy-adjusted EBITDA. J.P. Morgan, PJT Partners, and BNP Paribas acted as financial advisors to Altice.

Issuance is under Rule 144A-for-life. Note the special mandatory redemption at the issue price if conditions for the release of the escrow proceeds are not met before Aug. 31, 2016.

As reported, the acquisition is to be financed with $6.7 billion of new and existing debt at Suddenlink, a $500 million vendor loan note from BC Partners and CPP Investment Board, and $1.2 billion of cash from Altice.

The transaction is expected to close in the fourth quarter of 2015 once applicable regulatory approvals have been obtained.

This will be Altice’s third jumbo takeover in just over a year. Earlier in 2015, it completed a roughly €6 billion cross-border loan-and-bond financing backing the purchase of the Portuguese assets of Portugal Telecom from Oi for a €7.4 billion enterprise value.

In April of last year, Numericable and Altice completed a $16.67 billion, seven-tranche, euro and U.S. dollar offering that shattered records to become the largest bond deal on record, along with $5.2 billion in Numericable loans. The offerings were part of a multi-pronged M&A-related recapitalization under which Numericable purchased telecom firm SFR from Vivendi.

Suddenlink is the seventh-largest U.S. cable operator with 1.5 million residential and 90,000 business customers, primarily focused in Texas, West Virginia, Louisiana, Arkansas and Arizona. In 2014, Suddenlink generated revenue of $2.3 billion and EBITDA of more than $900 million. – Staff reports


Energy companies MarkWest, SandRidge unveil high-yield bond deals

Three high-yield deals were announced this morning for $2.4 billion. See the LCD High-Yield Forward Calendar for updated details. A cheat sheet follows:


(NEW) MarkWest Energy BB(e)/Ba3(e) $1.2B 10YNCL senior to redeem notes via WFS/Barc/BAML/Citi/GS/JPM/MS/RBC/STRH/UBS/USB

(NEW) Meritage Homes BB-(e)/Ba3(e) $200M 10NCL senior for GCP/repay RC via JPM/Citi/DB/BAML/PNC/RBC

(NEW) SandRidge Energy $1B 5YNC2 2nd lien secured to repay RC/GCP via Barc/MS/RBC//CapOne/Nat/RBS/STRH/UBS

Altice/Suddenlink BB-(1)/Ba3 $1.1B 8YNC3 1st lien; B-/Caa1 $300M 10YNC5 senior; CCC+/tbd $320M 10YNC5 holdco for M&A via JPM/BNP

CommScope BB/Ba2 $500M 5YNC2 secured and B/B2 $1.5B 10YNC5 senior for M&A via JPM/BAML/DB/WFS/Barc/Jeff; talk 4.5%, 6-6.25%.

—–This week:

American Energy Permian CCC+/B1 $295M 5YNC2 2nd lien to repay debt via GS/CS//BAML/MS/WFS

Tops Markets B(e)/B3(e) $550M 7YNC3 1st lien secured to redeem notes via BAML/WFS

—-Next week:

CMA CGM B-(e)/B3(e) ~$400M 5NC2 senior (part of $800M dual currency with Euro 5.5YNC2.5) to redeem notes BNPP/MS//CACIB/HSBC/ING/SG/Uni

Informatica CCC+(6)/Caa2 $750M 8NC3 senior for LBO via GS/BAML/CS/Macq/MS/Nomura/RBC/DB

Life Time Fitness CCC+(6)/Caa1 $600M 8NC3 senior for LBO via GS/DB/Jeff/BMO/RBC/Macq/Nomura/Mizuho


High-grade bond issuance within stone’s throw of record month

High-grade bond issuance climbed within short reach of the highest monthly total on record, after four issuers combined yesterday to offer $8.25 billion of new supply, largely on the strength of registration-exempt bank notes offerings.

The total as of May 27 left month-to-date issuance at roughly $134 billion, or less than $2 billion shy of the all-time peak for any calendar month, in September 2013, when Verizon Communications skewed the total with a record-smashing single offering of $49 billion of notes backing its acquisition of the remaining stake in Verizon Wireless from Vodafone.

LCD high-grade issuance totals exclude sovereign, quasi-sovereign, supranational, and preferred and hybrid-structure deals.

UBS AG, via its Stamford, Conn.-branch, yesterday completed a $3 billion, four-part offering, including $750 million of FRNS due June 2017 at L+56, and $1.25 billion of same-dated 1.375% fixed-rate notes at T+80, or 1.423%; along with $250 million of FRNs due June 2020 at L+85, and a $750 million tap of the existing 2.35% notes due March 26, 2020, at T+90, or 2.432%.

The 2020 tap was printed at a tighter spread but higher yield relative to when the coupon was first printed on March 23 as a $750 million offering at T+97, or 2.355%.

PNC Bank also launched a $3 billion offering of senior notes, across $550 million of three-year floating-rate notes due June 1, 2018 at L+42 and $1.3 billion of same-dated fixed-rate notes at T+65; along with $750 million of five-year notes due June 1, 2020 at T+83, and $400 million of 10-year notes due June 1, 2025 at T+115.

The 2018 and 2020 issues were set at the firm end of guidance ranges (from T+65-67 for 2018 fixed-rate notes and from T+83-85 for 2020 fixed-rate notes) and through initial fixed-rate whispers in the areas of T+75 and T+90. But the 10-year spread was set at the wide end of talk from T+110-115, and in line with initial whispers in the T+115 area.

KeyBank launched a $1.75 billion, three-part offering, including $250 million of three-year FRNs at L+52; and $750 million of same-dated, fixed-rate notes at T+75; along with $750 million of 10-year notes at T+120. KeyBank was last in market in February, when it completed a $1 billion offering of 2.25% notes due March 2020 at T+80.

Away from the bank sector, Xcel Energy (NYSE: XEL) yesterday completed a $500 million, “no-grow” offering of holding-company senior debt at the tight end of talk, across $250 million each of 1.2% three-year notes at T+58 and 3.3% 10-year notes at T+120. Initial whispers started from T+70-75 for the 2018 issue, and in the T+130 area for the 2025 issue.

The company locked in funds to repay near-term debt and for general corporate purposes, according to regulatory filings. Xcel had consolidated short-term debt of $969 million as of March 31, including $548 million of debt at the holding-company level.

The Minneapolis-based utility holding company – which is parent to entities including Northern States Power Company, Northern States Power Company-Wisconsin, Public Service Company of Colorado, and Southwestern Public Service Company – is not a frequent issuer at the parent level, having last tapped the long-term debt markets more than two years ago, in a deal that at the time snapped an absence from the debt markets dating to September 2011. – John Atkins/Gayatri Iyer


American Energy-Woodford launches exchange for bond issued in September

American Energy-Woodford late yesterday launched a distressed uptier exchange offer addressing its sole outstanding corporate bond. A majority of bondholders are already on board for the deal, which comes via MUFG as lead dealer manager, with joint dealer managers Credit Suisse and Morgan Stanley, according to sources. Early participation is due by 5:00 p.m. EDT on June 8, according to a company statement.

Under terms of the deal, investors in the company’s $350 million issue of 9% senior notes due Sept. 15, 2022 are offered an uptier exchange into new 12% second-lien PIK-interval notes due Dec. 30, 2020 at a haircut of 70% of par, inclusive of a 5% of par early-participation premium, the filing shows. The interval coupon is PIK from issuance and up to and including the June 2018 coupon, followed by 75% cash and 25% in kind though the June 2020 coupon, then cash to maturity, sources noted.

While certainly distressed, consideration offers a pick-up to secondary market valuation, as the CCC-/Caa3 paper has recently been quoted just short of 50, according to sources. This was the company’s debut in market last fall with CCC/Caa1 ratings via a Credit Suisse-led syndicate and with proceeds used to repay the company’s revolver, fund future acquisitions, and support capital expenditures.

The new, second-lien exchange notes are offered under Rule 144A for life, which is the same as the extant bonds. Features are proposed to include 4.5-years of call protection (Dec. 30, 2019), with a first call premium at 105.5, and a unique price at maturity of, similarly, 105.5, according to sources. An equity clawback feature is typical, at up to 35% of the issue at par plus coupon running for three years.

Conditions for the exchange include participation by at least 85% of bondholders, receipt of $100 million in new equity from the company sponsor, and the arrangement of a new reserve-based RCF with a $140 million initial borrowing base, according to sources.

American Energy-Woodford is one of American Energy Partners’ sponsor-backed platform companies designed to operate solely in the Central Northern Oklahoma Woodford leasehold. The Oklahoma City-based parent, American Energy Partners, was founded by former Chesapeake Energy head Aubrey McClendon in April 2013. – Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.