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NRG Energy Scraps $870M High Yield Bond Deal

Electric power concern NRG Energy has pulled an offering for $870 million of 10.25-year (non-call five) notes, according to a company statement. The cancellation was “in response to broader market conditions.”

Citi, Credit Agricole CIB, and Deutsche Bank were bookrunners on the deal, which sources say saw initial price talk at 5.75%. Proceeds would have been used to finance a tender offer for its $869 million of 6.625% notes due 2023, which has also been withdrawn.

Risk-on sentiments have waned in the high-yield market as of late, with U.S. high yield funds recording an outflow of $622 million for the week ended Nov. 8, following last week’s $1.2 billion withdrawal. Another sign of weakening was reflected in the Nov. 9 reading of LCD’s flow-name high-yield bonds, which showed the average bid for the 15-name sample dipping 114 bps, to 97% of par, for a new year-to-date low.

NRG’s would-be bond sale is the first to be pulled since Charter Communications scrapped its offering in June. — Jakema Lewis

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Negative Earnings Growth for US Leveraged Loan Issuers; First Time Since 2009

quarterly EBITDA growth loan issuers

Downshifting profit growth in 2016 reached stall speed for leveraged loan issuers early this year, putting pressure on credit metrics at a time when market participants are increasingly alert to signals of a developing negative inflection for the credit cycle.

First-quarter earnings for S&P/LSTA Leveraged Loan Index issuers that publicly file financial results revealed the first negative year-on-year aggregate reading for EBITDA since recession dynamics settled over the global economy during the first half of 2009, according to LCD.

quarterly EBITDA growth energy loan issuers

The first-quarter results were far from uniformly doom-and-gloom, however, as the negative 1.25% reading for 1Q EBITDA was net of noisy and wide-ranging results, by sector basket.

Even so, the readings were slightly negative on net (negative 1%) when stripping out volatile oil and gas inputs from the sample, and included more dour results from retail and media credits, where distress ratios have disproportionately climbed over the last year ($$).

High-level commentary from speakers at the Milken Institute Global Conference earlier this month generally keyed on the notion that profit growth—while below the heights recorded during the recovery period over the first half of this decade—would likely prove resilient over the quarters ahead, given relative strength in credit metrics now, versus at the same point in prior credit cycles, bolstered by still-accommodative—if tightening—monetary policy.

Indeed, S&P Global’s Bob Keiser notes that corporate America writ large posted a smart 15% year-to-year increase in first-quarter earnings across the S&P 500, and projections suggest continued growth into 2018. But this sample prominently includes results from oil-and-gas players, many of which reported big year-to-year improvements on the bottom line in 1Q17 amid more stable commodity-price progressions, relative to the desperately weak comparisons from 1Q16.

When stepping back from the oil story, the slip in profits to start 2017 extends a bright-line trend for loan issuers. The negative first-quarter print across the S&P/LSTA Index, compared with 7.1% growth in the first quarter of last year and 4–6% growth rates over the last three quarters of 2016, marks a steady deceleration from quarter averages of 7% in 2015, 9% in 2014, and 13% over the recovery period from 2010–2013.

Flow-of-funds analysis ($$) by S&P Global for the concluding quarter of 2016 had already showcased a glaring jump in the financing gap for U.S. companies (the difference between capital spending and what is covered by internal cash generation), as a nascent uptick in capital spending—in part due to O&G credits increasing their outlays as commodity prices stabilized—dovetailed with tumbling profit growth.

outer edge credit statistics

A high financing gap is unsustainable without a pullback in spending or a substantial increase in borrowing, which may put leverage trends for some of the more at-risk loan issuers under a harsh spotlight in a low- or negative-growth environment for earnings. Indeed, issuers with “outer-edge” debt/EBITDA ratios of greater than 7x swelled to 22.56% of the sample in the latest quarter, up more than four percentage points from 4Q16 and versus 21.15% a year earlier, marking the highest proportion since 4Q14. – John Atkins

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Chesapeake Energy Upsizes Leveraged Loan by $500M, Tightens Interest Rate

Joint bookrunners Goldman Sachs, Citi, and MUFG have upsized Chesapeake Energy’s first-lien, last-out term loan to $1.5 billion, from $1 billion, and tightened pricing, according to market sources. Pricing was expected later today.

Price talk for the five-year loan is now L+750 with a 1% LIBOR floor, offered at par. Recall initial guidance including a spread range of L+750–775 and an OID of 99. The loan is non-callable for two years, with a first call at par plus 50% of the coupon, stepping to 25% and par.

chesapeake energy logoProceeds from the deal will be used to fund a tender offer for up to $500 million of the borrower’s outstanding bonds in terms of purchase price. The tender prioritizes the company’s shortest-dated bonds. It will redeem up to $400 million (purchase price) of its 6.35% euro senior notes due 2017, 6.5% senior notes due 2017, and 7.25% senior notes due 2018.

Up to $250 million will be spent on the second-priority floating-rate senior notes due 2019 and the third-priority notes, which comprise the following paper: 6.625% senior notes due 2020; 6.875% senior notes due 2020; 6.125% senior notes due 2021; 5.375% senior notes due 2021; 4.875% senior notes due 2022; and 5.75% senior notes due 2023.

The new debt will be secured against the same collateral that is tied to the company’s revolver. In case of default, payments to new term loan creditors will waterfall down after the revolver is repaid. The loan will carry an unconditional guarantee from Chesapeake’s directly and indirectly held wholly owned domestic subsidiaries, with the same guarantee in place for the revolving credit.

Agencies assigned issue ratings of B–/Caa1 and the recovery rating from S&P Global Ratings is 1. S&P Global also downgraded the corporate rating to CC, from CCC. Moody’s affirmed the corporate rating at Caa2. Outlooks are negative and positive, respectively. — Jon Hemingway/Rachel McGovern

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Chesapeake Energy Launches $1B Leveraged Loan Backing Bond Tender Offer

Chesapeake Energy has launched a $1 billion first lien, last-out loan to syndication. Goldman Sachs (left lead), Citi, and MUFG are joint bookrunners on the transaction.

The five-year deal is expected to price in the middle of this week, and the proceeds will be used to finance a tender offer for up to $500 million of the borrower’s outstanding bonds in terms of purchase price.

chesapeake energy logoThe new debt will be secured against the same collateral that the company’s revolver is tied to. In case of default, payments to new term loan creditors will waterfall down after the revolver is repaid. The loan will carry an unconditional guarantee from Chesapeake’s direct and indirectly held wholly-owned domestic subsidiaries, with the same guarantee in place for the revolving credit facility.

The tender prioritizes the company’s shortest-dated bonds. It will redeem up to $400 million (purchase price) of its 6.35% euro senior notes due 2017, 6.5% senior notes due 2017, and 7.25% senior notes due 2018.

Up to $250 million will be spent on the second priority floating-rate senior notes due 2019 and the third priority notes, which comprise the following paper: 6.625% senior notes due 2020; 6.875% senior notes due 2020; 6.125% senior notes due 2021; 5.375% senior notes due 2021; 4.875% senior notes due 2022; and 5.75% senior notes due 2023. The full tender announcement can be found here.

The new facility and tender offer follows better-than-expected second-quarter earnings from the energy firm, which pushed some of its outstanding debt higher on Aug. 4. As reported, the 8% second-lien exchange notes due 2022 jumped two points to start the session, at 93/93.5, and were later quoted at 92/93, with trades at 92. The 6.625% unsecured notes due 2020 traded as high as 80 following the results, versus 77 before publication, trade data show. — Rachel McGovern

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Energy Future to Sell Oncor to NextEra in Deal Valued at $18.4B

NextEra Energy said today that it would acquire Energy Future Holdings’ 80% interest in its regulated utility, Oncor, in a deal valued at $18.4 billion.

Nextera logoIn connection with the deal, NextEra and Energy Future entered into a reorganization plan support agreement providing for, among other things, the spin-off of the company’s T-side, Texas Competitive Electric Holdings (TCEH), pursuant to a reorganization plan that will result in a partial step-up in the tax basis of certain TCEH assets, and NextEra’s acquisition of Oncor through the purchase of the company’s so-called E-side, specifically 100% of holding company Energy Future Holdings (EFH).

As reported, EFH owns intermediate holding company Energy Future Intermediate Holdings (EFIH), which directly controls the company’s stake in Oncor.

According to a Form 8-K filed this morning with the Securities and Exchange Commission, the company said the purchase price would consist “primarily of cash.”

NextEra, meanwhile, said in a news release that it would fund $9.5 billion of the purchase price to be used “primarily for the repayment of EFIH debt,” adding, “Of that amount, it is expected that certain creditors will be paid primarily in cash, with the remainder in NextEra Energy common stock.” NextEra said that the amount of NextEra stock ultimately issued to EFIH creditors would be determined based on, among other things, the estimated cash on hand at EFH upon closing and the volume weighted average price of NextEra common stock for a specified number of days leading up to the closing.

NextEra said it would generate the funding from “a combination of debt, convertible equity units, and proceeds from asset sales,” but also noted that the transaction was not subject to any financing contingency.

NextEra said that under the reorganization plan contemplated by the transaction, the EFIH DIP facility, with about $5.4 billion outstanding, would be paid in full, “using cash financed by a non-EFH/Oncor NextEra Energy affiliate upon closing.” NextEra also said the contemplated E-side reorganization plan would “extinguish all EFH and EFIH debt that currently exists above Oncor.”

According to bankruptcy court filings, that includes, among other things, a first-lien and second-lien facility at EFIH, unsecured toggle notes at EFIH, and unsecured debt at EFH.

The deal is subject to regulatory approvals, most notably by the Texas Public Utility Commission, the Federal Energy Regulatory Commission, and the Federal Trade Commission, as well as the completion of the contemplated TCEH reorganization and spin-off, which would occur in September if all goes according to plan.

As reported, certain PUC rulings in connection with the company’s prior plan to sell Oncor to Hunt Consolidated that would have reduced the financial benefits accruing to that deal’s investors from a planned REIT conversion, caused that deal to fall apart last April.

The transaction is required to close by March 26, 2017, subject to a 90-day extension under certain conditions, according to the Form 8-K. NextEra said it expects the deal to close during the first quarter of 2017.

The agreement specifically permits the company to continue to solicit acquisition proposals for Oncor, and even following approval of the merger agreement by the Wilmington, Del., bankruptcy court, to continue discussions on an alternative transaction with any parties with which it was already in active negotiations at the time of such bankruptcy court approval, or with any third party that submits an unsolicited proposal “reasonably likely to lead to a superior proposal.”

The agreement carries a break-up fee, however, of $275 million, if the company completes an alternative transaction. — Alan Zimmerman

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NRG Energy Readies $1.9B Leveraged Loan

An arranger group led by Citigroup and Morgan Stanley is launching via a lender call tomorrow at 11 a.m. EDT a $1.9 billion B term loan for NRG Energy, sources said.

No additional details were available.

NRG in 2013 placed a $2.022 billion B term loan due July 2018 that cleared at L+200, with a 0.75% LIBOR floor. Term loan outstandings stood at $1.95 billion as of March 31, according to an SEC filing.

Princeton, N.J.–based NRG Energy, rated BB/Ba3, is an integrated wholesale power-generation and retail electricity company. — Chris Donnelly

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C&J Energy Enters into Forbearance Agreement Following Covenant Breach

C&J Energy Services entered into a forbearance agreement with its lenders after the company’s temporary limited waiver agreement with respect to its covenant violation expired on May 31.

As reported, C&J Energy recently engaged Kirkland & Ellis and Fried Frank as legal advisors and Evercore as financial advisor to explore strategic alternatives, which could include a refinancing or restructuring of its capital structure to address its liquidity issues and high debt levels or a potential Chapter bankruptcy filing, according to the company’s 10-Q filing.

The company’s B-1 term loan due 2020 (L+550, 1% LIBOR floor) was marked at 66.5/69.5 this morning, from 65/68 yesterday, according to sources. The B-2 term loan due 2022 (L+625, 1% floor) is marked at 66/69, versus 64.5/67.5 yesterday.

C&J Energy, which fell out of compliance with the minimum-cumulative-consolidated-bank-EBITDA covenant governing its credit agreement, said lenders have agreed to forbear from exercising default remedies or accelerating any indebtedness through June 30 as a result of the covenant violation or any default that results from the non-payment of interest.

The company said it will continue discussions with its creditors regarding the company’s debt and capital structure.

The loans were syndicated in March via a Citi-led arranger group to back the purchase of the Nabors unit. The B-1 loan was issued at 86 and the B-2 tranche at 84.

Bank of America Merrill Lynch is administrative agent.

NYSE-listed C&J Energy Services is an independent provider of premium hydraulic fracturing, coiled tubing, wireline, pump-down, and other complementary oilfield services with a focus on complex, technically demanding well completions. The company is rated CCC–/Caa3 with negative outlook on both sides. — Rachelle Kakouris

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Vanguard Natural Resources Latest Oil Company to Cut Loan Borrowing Base

Vanguard Natural Resources disclosed that it has cut its revolver’s borrowing base by $475 million, to $1.325 billion, via an amendment, which also included a one-time current ratio waiver for the second quarter of 2016 and an increase in mortgage requirements.

As of May 26, the company had $1.424 billion outstanding under the revolver and roughly $4.5 million of outstanding letters of credit. Therefore, the borrowing base cut resulted in a deficiency of roughly $103.5 million. Vanguard will seek to cure the deficiency through six equal monthly installments of roughly $17.3 million beginning on June 27.

S&P Global Ratings in January lowered the Vanguard’s corporate credit rating to CC, from B–. In March, Moody’s downgraded Vanguard’s corporate rating to Caa3, from B3.

Vanguard Natural Resources is a publicly traded limited liability company focused on the acquisition, production, and development of oil and natural gas properties. The company trades on the Nasdaq under the ticker VNR. — Richard Kellerhals

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Linn Energy Delisted from NASDAQ; LinnCo Exchange Offer Extended

Linn Energy said yesterday it received notice that it and LinnCo would be delisted from trading on NASDAQ, as of today’s open.

The company said that the two companies are expected to begin trading on the OTC Pink Sheets marketplace today under the symbols LINEQ and LNCOQ, respectively.

Separately, the company also said yesterday it had extended its offer to exchange Linn units for shares in LinnCo, to 12 a.m. EDT on June 30. The terms of the exchange have not changed.

As reported, the exchange offer’s purpose is to permit holders of Linn units to maintain their economic interest in Linn through LinnCo, an entity that is taxed as a corporation, rather than a partnership, which may allow Linn unitholders to avoid future allocations of taxable income and loss, including cancellation of debt income that could result from the Chapter 11.

Roughly 12.07 million shares have been exchanged so far, representing about 69% of Linn Energy’s outstanding units, the company said. — Alan Zimmerman

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Swift Energy emerges from Chapter 11

Swift Energy today emerged from Chapter 11, the company announced this morning, adding that it closed on a new $320 million senior secured credit facility in connection with the emergence.

As reported, proceeds of the exit facility were used to repay holders of the company’s prepetition $330 million RBL. The company did not provide further details of the exit facility.

As also reported, the Wilmington, Del., bankruptcy court overseeing the company’s Chapter 11 confirmed the company’s reorganization plan on March 30.

Under the plan, senior notes will be exchanged for about 96% of the reorganized company’s equity, subject to dilution on account of the equitization of the company’s $75 million DIP facility via a rights offering.

According to court documents, the DIP equitization will dilute the distribution to senior noteholders by 75%. Consequently, after giving effect to the rights offering backstop fee of 7.5% of the equity, the final equity distribution to noteholders on account of their claims will be 22.1%, resulting in a recovery rate of 4.6–12.8%, depending upon plan equity value.

At a midpoint value of $680 million, court documents show, the senior notes recovery rate stands at 8.7%.

Existing equityholders retained 4% of the reorganized company’s equity, subject only to a proposed new management-incentive program. In addition, existing equityholders are also to receive warrants for up to 30% of the post-petition equity exercisable upon the company reaching certain benchmarks. — Alan Zimmerman