Hilcorp Energy prints rare 10-year high-yield bond offering as rates inflect lower

As interest rates cascaded lower to kick off November, Hilcorp Energy on Nov. 3 announced and completed a $600 million intraday offering of 10-year (non-call five) senior unsecured notes, which it upsized from an initial pitch at $500 million, and which it priced at the tight end of talk (8.375%). Aside from its warm reception on the primary market, the issue stands out as just the second high-yield offering this year to sport a relatively long 10-year final maturity.

Hilcorp issued the longest dated deal this year among a relative profusion of prints from the oil & gas sector. Overall, it's the first 10-year deal with high-yield ratings since January. Synchrony Financial — which carries investment-grade issuer ratings (BBB-) — on Jan. 30 priced subordinated 7.25% 2033 bullet notes, rated BB+.

Hilcorp priced the first 10-year issue from a company with high-yield issuer ratings since Ford Motor Co. — now a rising-star issuer — priced 10-year green bullet notes last August. It’s the first deal to carry the 10-year (non-call five) structure since an offering from Builders FirstSource in June 2022.

The 10-year maturity was a mainstay for high-yield issuers as they reset their balance sheets after the Global Financial Crisis. There were 105-161 tranches of new-issue 10-year notes printed on the high-yield primary each year from 2010-2013, and 92-95 from 2014-2015. Since then, the highs were 91 in 2017 and 80 in 2021, versus low ebbs at 25 in 2018 and 12 last year.

Dovish signals from the Fed on Nov. 1, punctuated by a softer-than-expected jobs report on Nov. 3, triggered a dramatic change in the funding landscape from October to November. The 10-year Treasury yield dropped from 4.93% at the open on Nov. 1 to trades below 4.50% on Friday. (At the lows, yields were down more than half a point from 5.02% on Oct. 23, a high since the summer of 2007.) Against that move, new-issue 11.50% 2030 senior notes priced on Oct. 31 by Navient Corp. traded Friday at 104.75-104.875% of par, up above five percentage points from pricing (at an OID of 98.81), and versus early trades in the 100.125 area ahead of the Fed.

Ahead of last week's dramatic rate move, issuers steadily trimmed their borrowing horizons through the Fed's rate-tightening cycle, accelerating a much longer trend of shortening maturities. New-issue deals with maturities of five-years or less have accounted for a record 43% of all tranches priced on the US HY primary this year to Nov. 3, up from 28% in 2022 and 19% in 2021. The prior peak, at roughly 35% in 2020, came as issuers plied short-dated instruments to bridge the cash-flow disruptions triggered by the global pandemic. The average annual share for such short-dated issuance was much lower from 2010-2019, at 20%, LCD data show.

As borrowers recoiled from high long-term debt service costs, the maturity profile for the pool of outstanding bonds was the shortest on record as the Fed deliberated last week. The average years to maturity for constituents of the S&P US High Yield Corporate Bond Index touched an all-time low at 5.75 years on Oct. 31, down from 6.3 years at the end of 2022, and seven years just ahead of the declaration of the global pandemic in March 2020. That average was at eight years just ahead of the collapse of Lehman Brothers in 2008.

Featured image by Anton Petrus / Getty Images

This article originally appeared on PitchBook News