Morning Commentary: Stronger energy prices push junk bonds higher; Centene sets price talk

By Paul A. Harris

Portland, Ore., Jan. 28 – High-yield bonds were up as much as ½ point Thursday morning on the back of improving energy prices, sources said.

The barrel price of West Texas Intermediate crude oil for March 16 delivery was up $1.39, or 4.3%, at $33.69 per barrel on the news that Russia may be in discussions with Saudi Arabia, with the aim of cutting back crude oil production by 5%, a trader said.

Oasis Petroleum Inc.’s bonds rose 5 points to 6 points, buoyed by the stronger crude prices as well as by an announcement from the company that it has priced a public offering of 34 million shares of common stock generating total gross proceeds of about $160 million. Oasis intends to use the money for general corporate purposes and to fund a portion of its 2016 capital expenditures.

The Oasis Petroleum 6 7/8% senior notes due March 15, 2022 were at 58½ bid, 59½ offered, up 5 points at mid-morning in New York, according to sources.

However the notes were off their highs of 60½ bid, a trader said.

High-yield ETFs were moderately higher.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 11 cents, or 0.14%, at $78.74 per share. SPDR Barclays High Yield Bond ETF (JNK), at $32.94 per share, was up 6 cents, or 0.2%.

Hub wrapped around 103

The new Hub International Ltd. 9¾% senior second-lien secured notes due Feb. 15, 2021 (B3/CCC+) were wrapped around 103 on Thursday morning at 102¾ bid, 103¼ offered, a trader said.

However there was not a lot of activity in the name because as much as $250 million of the $300 million issue, which priced Wednesday at par, was taken down by four accounts, sources say.

The Morgan Stanley-led deal played to $1 billion of demand from 50 accounts, according to a portfolio manager.

Centene sets talk

In the primary market, Centene Corp. set price talk for its $2.27 billion two-part offering of senior notes (expected ratings Ba2/BB).

The deal features five-year notes talked to yield 5¾% to 6% and eight-year notes talked to yield 6¼% to 6½%.

Tranche sizes remain to be determined.

Books close at 2 p.m. ET on Thursday, and the deal is set to price thereafter.

Wells Fargo is the left bookrunner. Barclays, Citigroup Global Markets Inc. and SunTrust Robinson Humphrey Inc. are the joint bookrunners (see related story in this issue).

Elsewhere Acadia Healthcare Co. Inc. is expected to show up shortly with a $390 million offering senior notes in a deal that will be led by BofA Merrill Lynch, according to a portfolio manager, who expects to see it launch Friday or Monday.

Mixed flows

Cash flows for dedicated high-yield bond funds were mixed on Wednesday, the portfolio manager said.

High-yield ETFs saw $326 million of inflows on the day.

However actively managed funds sustained $40 million of outflows.

Look for the weekly fund flows report due out later Thursday from Lipper-AMG to show decent inflows for the week to Wednesday's close, a trader advised.

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