Little activity seen in distressed universe; supermarkets continue to suffer; energy a mixed bag

By Paul Deckelman

New York, Aug. 30 – Activity was low-key in the distressed bond market on Wednesday, traders said, in line with a generally quieter tone in the overall high-yield market with the impending Labor Day holiday break in the United States fast approaching.

But bonds of supermarket companies like Fresh Market, Inc., Ingles Markets, Inc. and Albertsons Cos. LLC continued to trade fairly actively for a generally quiet session, with most of that paper again being pushed lower on investor fears that the newly completed merger between sector peer Whole Foods Market and retailing giant Amazon.com – and the latter company’s initiative to slash prices at its new unit – could force the others in the industry to do likewise, meaning lower revenues and earnings.

Energy issues were seen as a mixed bag, even as Hurricane Harvey continued to wreak havoc along the U.S. Gulf Coast region, doubling back on its earlier path and pushing into Louisiana. Names like Denbury Resources Corp. and EP Energy Corp. were seen lower on the session, while Jones Energy Holdings and drillers Ensco and Atwood Oceanics made up for some lost ground.

In the emerging markets arena, traders said that Venezuela’s sovereign debt and the bonds of that country’s state-owned energy monopoly, Petroleos de Venezuela SA, were trading at the low end of their recent ranges on Wednesday; those sources said that the news that Cantor Fitzgerald LP has stopped trading Venezuela debt on the heels of U.S. restrictions imposed on trading last Friday did not at this point seem to be having much impact – but could weigh on the troubled Latin American nation’s debt further down the road.

Market quiets down

In the secondary realm, a trader said Wednesday that “there was “nothing much going on – no real stories of any names moving around, one way or another.

“Markets were flat, unchanged. Everything was kind of flat and uneventful.”

Things were “brutally quiet,” a second trader agreed, with “really not much of note happening.”

He said that “not a lot was going on, volume-wise – even among the normally active volatile-price names.”

Food stores still faltering

In the supermarket space, a trader said that “Fresh Market has been active over the last few days on the news about Amazon and Whole Foods.” Internet retailing giant Amazon this week officially closed its acquisition of Whole Foods – and promptly slashed prices on some food items by as much as 43%, sparking fears among rival grocers that they will be forced into a destructive price war that will cut revenues and earnings and reduce their already thin profit margins even further.

He said that the St. Louis-based store chain operator – considered a direct competitor of Whole Foods in vying for younger, more affluent grocery shoppers by featuring a lot of organic items and unusual, boutique products as well as the usual supermarket fare – “is pretty much unchanged,” with its 9¼% notes due 2023 around 75¾ bid.

A second trader located Fresh Market’s paper trading at 75 5/8 bid, down 1/8 point on the day, with around $7 million having changed hands.

Elsewhere in the food-store sector, a trader said that he had seen “not a lot of trading” in Black Mountain, N.C.-based Ingles Markets’ 5 ¾% notes due 2023.

“They’re still around 98-to-98½ – no real change there.”

A second trader saw them at 98 3/8 bid – little changed on the session but down some 2¼ points from their recently high levels. He said that only about $1 million traded in any sizeable trades, although there were a fair amount of smaller odd-lot transactions.

Not all of Wednesday’s activity was on the downside, though.

Boise, Idaho-based Albertsons’ 6 5/8% notes due 2024 were seen by a trader having bucked the sector’s generally negative tone, moving up by ½ point to 96 bid, on turnover of more than $9 million.

Another trader also saw them ending at 96 – but noted that they were off some 2½ points from their recent levels.

And a market source said that Jacksonville, Fla.-based supermarket chain operator BI-LO Holdings LLC’s 9 ¼% notes due 2019 gained 1¼ points on the day to close at 86½ bid, on volume of around $6 million.

Energy names mixed

In the energy field, a trader noted that Denbury Resources’ 9% notes due 2021 lost ¾ point on the day to close at 88¾ bid.

A second trader agreed, noting “they have some Texas exposure,” meaning some of the company’s operations may be curtailed in the wake of the Lone Star State’s recent weather problems from Hurricane Harvey.

He called them “down another ½ point” to the 88¾ bid level.

At another desk, the Plano, Texas-based oil and natural gas company’s 6 3/8% notes due 2021 were seen languishing at 54 bid, down ½ point on the day.

Austin, Texas-based oiler Jones Energy, Inc.’s 6¾% notes due 2022 were seen by a trader having moved up to 70 bid, calling that a 1 ½ point gain.

The trader also saw improvement in Pacific Drilling SA’s 5 3/8% notes due 2020, calling those notes too up 1 ½ points on the session, at 37½ bid.

Other energy-related names on the upside Wednesday included marine oil drilling contractor Ensco’s 5¾% bonds due 2044, up a point on the day to just over 65, and Atwood Oceanics – which is being bought by Ensco – whose 6½% notes due 2020 gained 1 point to 98½ bid.

Back on the downside, exploration and production operator EP Energy’s 8% notes due 2025 closed down ¾ point at 67¼ bid.

Venezuela, PDVSA off; Cantor no factor

In the emerging markets space, a market source said that Venezuela’s government bonds and Petroleos de Venezuela SA’s paper were trading at the low end of their recent ranges on Wednesday – but were otherwise not reacting very much to news that Cantor Fitzgerald LP has stopped trading Venezuela debt on the heels of U.S. restrictions imposed on trading last Friday.

Cantor pulled all bonds issued by Venezuela and PDVSA from auctions and told customers those trades are restricted on Tuesday, according to report in the Wall Street Journal. But a second source said that Cantor was only avoiding certain bonds from the country.

Cantor declined to comment, but it was suspected that the move was motivated by a desire to avoid inadvertently violating the U.S. sanctions aimed at keeping President Nicolas Maduro’s regime from potentially profiting from such trade when it continues to move toward authoritarianism despite an outcry both within and outside the country to return to democratic practices.

The latest restrictions apply to trading of new bonds issued after June 1 or from trading with Venezuelan government entities. They do not prohibit U.S. firms from trading Venezuela debt, so the Cantor decision did not seem to be leading other firms to follow suit. On the contrary, “other houses are picking up the volume,” said a New York-based trader, adding that he did not feel the Cantor move was very smart.

Still the Cantor move does “add a layer of concern” for the Venezuela and PDVSA secondary market, the trader said.

Volumes are subdued but that was as likely to be attributable to the fact that it is the last unofficial week of summer, heading into the long U.S. holiday weekend, as to anything else, the trader said.

“Obviously it dries up some liquidity, but basically the market is consolidating at the lower end of the range,” the trader said.

Also on Wednesday, there was confusion regarding a notice by the Depository Trust & Clearing Corp., which said it was suspending clearing services for Venezuela and PDVSA bonds, but later the clearinghouse said it was an error and resumed services, a market source said.

Also Fitch Ratings said on Wednesday it downgraded Venezuela’s long-term foreign and local currency issuer default ratings to CC from CCC, senior unsecured debt to CC from CCC and country ceiling to CC from CCC. Short-term foreign and local currency issuer default ratings were affirmed at C.

Fitch said the downgrade reflects its view that a default is probable given the further reduction in financing options for the government of Venezuela following the imposition of additional sanctions.

“The sanctions prohibit U.S. persons or entities based in the U.S. from a series of financial transactions with the government and PDVSA, including any dealings in new debt as well as dealings in certain existing bonds owned by the Venezuelan public sector and dividend payments to the government of Venezuela,” the agency said in a release.

In trading on Wednesday, the PDVSA 8½% notes due 2020 were trading at 72½ bid, 73½ offered.

The PDVSA 8½% notes due 2017 were quoted at 89½ bid, 90½ offered – while the weakest issues, including the PDVSA 6% notes due 2026, were trading as low as around 30 bid, 31 offered.

Rebecca Melvin contributed to this review

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