Junk market starts week mixed; energy names continue slide, other credits up; primary stilled

By Paul Deckelman and Paul A. Harris

New York, Dec. 21 – The high-yield market began the next-to-last trading week of the year on Monday on a mixed note, in contrast to the two straight lower sessions seen on Thursday and Friday.

Energy credits such as Suburban Propane Partners LP, California Resources Corp., SandRidge Energy, Inc., Blue Racer Midstream LLC and Chesapeake Energy Corp. were lower, the last company meanwhile announcing preliminary results for its partial debt exchange.

However, traders saw improvement in the non-energy part of the market, with better levels on credits such as Community Health Systems, Inc., HCA, Inc. and First Data Corp.

The new-deal market remained in its pre-holiday shutdown mode.

Market participants saw relatively thin volume levels and predicted that these would only get lighter in the run-up to Friday’s market close in observance of the Christmas holiday.

Statistical measures of junk market performance turned mixed on Monday after having been lower across the board on Thursday and again on Friday.

Mixed flows on Friday

No deals price on Monday, and none were announced. Primary market business has concluded for the remainder of 2015, market sources say.

Trading desks and syndicate desks are thinly staffed, and the ranks of market participants will continue to grow thinner through the remainder of the week, a trader said.

The cash flows of the dedicated high-yield funds were mixed on Friday, the most recent session for which data was available at press time, a trader said.

High-yield exchange-traded funds sustained $300 million of outflows on the day.

However, actively managed funds saw $45 million of inflows on Friday.

Meanwhile, the daily flows for the dedicated bank loan funds were also negative on Friday. The loan funds saw $285 million of outflows on the day.

‘A lot of nothing’

In the secondary arena, a high-yield trader said that he was seeing “a lot of nothing today.”

He noted that “the energy names that really took it on the chin on Friday and were down 4 points or 6 points” were showing “some weakness again today, but not like that.”

Energy stays under pressure

Energy names remained challenged on Monday as world crude oil prices saw some of their weakest levels in years.

The benchmark U.S. crude grade, West Texas Intermediate for January delivery, saw its first upturn after three straight sessions on the slide that had brought it down to levels not seen since early 2009. It moved up all of 1 cent, or 0.03%, to settle at $34.74 per barrel on the New York Mercantile Exchange. International oil benchmark Brent crude for February delivery meantime fell for a fourth straight session, losing 53 cents, or 1.22%, to settle at $36.35 a barrel on the London ICE Futures Exchange, its lowest level in 11 years.

That continued to pull energy-related bonds lower. Among the more active names on the day, a market source said that California Resources’ 8% notes due 2022 lost more than ¾ point on the session to finish at 52 bid on volume of more than $15 million, while its 6% notes due 2024were off by ½ point at 29½ bid, 30½ offered, on somewhat less volume.

SandRidge Energy’s 8¾% notes due 2020 eased by 1/8 point on volume of over $10 million, finishing at 29 3/8 bid.

Blue Racer Midstream’s 6 1/8% notes due 2022 were down more than a deuce on the day at 68 7/8 bid, with more than $10 million having changed hands.

A trader said that “even the short end is down” on Chesapeake Energy’s debt, seeing it about “5 or 6 points” from their levels late last week.

He said that his shop had traded its 6½% notes due 2017 around 51½ or 52 bid on Thursday, “and they’re printing at 45 today – and that’s a front-end piece of paper.”

Chesapeake meantime announced the preliminary results of its recently announced partial tender offer for $9.3 billion of its outstanding bonds, saying that holders had tendered $3.8 billion of the bonds by the early tender deadline on Friday. It expects to issue about $2.35 billion of new second-lien notes for that existing debt.

The trader also saw Suburban Propane’s 5½% notes due 2024 as “one of the big movers of the day,” off nearly 4½ points at just over 80 bid, but he said “they really didn’t trade much.”

Non-energy credits firmer

Away from the energy realm, non-energy credits were seen doing somewhat better on the day, in contrast to Friday’s session, when they too were mostly lower.

In the health-care sector, a market source said that hospital operator HCA’s 5% notes due 2024 gained 13/16 point on the day to end at 99½ bid, on volume of around $9 million.

Sector peer Community Health Systems’ 6 7/8% notes due 2022 gained 1/8 point to end at 91½ bid, with over $10 million traded.

However, one of the traders characterized Community Health’s issue as having had “lots of volume but not much movement.”

Away from health care, First Data’s 7% notes due 2023 gained 3/8 point to end at 98 3/8 point, with over $8 million traded.

Indicators turn mixed

Statistical measures of junk market performance turned mixed on Monday after having been lower across the board on Thursday and again on Friday. Including the two straight higher sessions before that, Monday was the second mixed session in the last six trading days.

The KDP High Yield Daily index dropped by 19 basis points to end at 62.97 – just 2 bps above its 2015 and 52-week low of 62.95, set on Dec. 14.

It was the index’s third straight loss following two consecutive gains and eight losses before that and was thus its fourth loss in the last six sessions. On Friday, it had slid by 37 bps.

Its yield rose by 8 bps to 7.64%, tying the highest 2015 closing yield, also set Dec. 14. It was its third straight widening after two sessions during which it had tightened, following eight widenings before that, thus making Monday its fourth widening in the last six sessions. On Friday, it had moved up by 7 bps.

The Markit Series 25 CDX North American High Yield index, however, firmed by 1/32 point on Monday to end at 99 7/16 bid, 99½ offered, its first gain after two successive setbacks, including Friday’s 11/32-point loss. Monday’s rise was thus its second in the last four sessions.

But the Merrill Lynch North American Master II High Yield index declined by 0.043%, its third straight downturn after two gains, which in turn had followed eight straight losing sessions before that. On Friday, it had closed off by 0.692%.

Monday’s retreat raised the index’s year-to-date loss to 5.691% from 5.603% on Friday, although it remained below last Monday’s 5.957% year-to-date loss, which had been its fifth straight new largest cumulative deficit of 2015 and its lowest level seen since Dec. 31, 2008, when it ended with a 30% loss on the year.

© 2015 Prospect News.
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