Junk primary quiet as 2018 opens; CalRes surges on crude price rise, Chesapeake up as gas prices gain

By Paul Deckelman and Paul A. Harris

New York, Jan. 2 – It was back to work in Junkbondland on Tuesday, with the year-end holidays done with and a new month, quarter and year ahead.

But market participants reported a very quiet session, with little or nothing happening right now in the primary sphere – although fast-food chain operator Arby’s Restaurant Group Inc. could serve up a new deal as soon as next week, part of a projected $15 billion-to-$20 billion January deal pipeline.

In the secondary realm, traders saw some activity – though not much price movement – in such recently priced names as drug maker Valeant Pharmaceuticals International Inc. and toy manufacturer Mattel Inc.

But the action was in the energy sphere, among such names as oil and natural gas exploration and production operators California Resources Corp. and Chesapeake Energy Corp.

The former’s benchmark bonds – continuing a recent surge – firmed smartly as crude oil prices opened the new trading year at their highest point since 2014, pushed up by supply concerns stoked by the current political unrest in major oil producer Iran.

The latter company’s paper meanwhile popped along with natural gas prices, which are rallying on investor hopes for big demand, as much of the United States remains locked in an early-winter deep freeze.

Metals miner Cleveland Cliffs Inc.’s bonds rose, along with its shares, as iron ore prices were pushed up by an expected pickup in Chinese demand this year.

Statistical market performance measures were higher across the board for a second consecutive session on Tuesday, firming after having been mixed before that.

The new issue market remained dormant on Tuesday.

There is a modest January pipeline, and the anticipation that $15 billion to $20 billion could clear the market during the opening month of 2018, a trader said.

Arby’s Restaurant Group Inc. might come as early as the Jan. 8 week with a $485 million offering of senior notes backing its acquisition of Buffalo Wild Wings Inc., the source added.

Barclays will lead the deal, market sources say.

An issuance blackout ahead of quarterly earnings reports scheduled for the end of the month can be expected to constrict January issuance somewhat, sources say.

A quiet session, first day back

In the secondary market, traders said that things were pretty quiet on the first day back after the long New Year’s Day holiday weekend, which had seen an early close on Friday and a full market shutdown on Monday.

For some market participants who took advantage of the traditional year-end holiday lull to schedule extended vacations, it was their first day back in the saddle since before Christmas.

“I think everybody was just trying to get back in their seats today and figure out which end was up,” a trader said, commenting on the relatively quiet session, although he noted that “the market was better-bid throughout the day today.”

At another desk, a market source declared that “it was a lackluster kinds of start [to the new year], but Day One is behind us.”

However, he pointed out that “we did not have very high volume – not even $2 billion today.”

CalRes climbs on oil price strength

Among specific names, the traders saw California Resources’ energy sector benchmark 8% senior secured second-lien notes due 2022 firming to 84½ bid, which a trader said was a 1½-point jump “on pretty good volume” of more than $19 million, topping the day’s Most Actives list.

A second trader suggested that “oil has been on a nice little surge into the end of the year,” and Los Angeles-based E&P operator Cal Res also “were rallying pretty good into the year-end,” continuing that positive momentum on into the new year.

The bonds’ gains came against a backdrop of world crude oil prices pegged at their highest Jan. 2 start-of-the-year levels since 2014 – the year that crude began a precipitous slide at mid-year, which carried into subsequent years; the oil markets are just now trying to fight their way out of that trough, helped along by new geopolitical supply concerns amid political and social chaos now going on in major producer Iran.

Prices for both February-contract West Texas Intermediate, the key domestic crude grade, and March delivery North Sea Brent crude, the key international grade, were actually off slightly on Tuesday from the levels at which they had closed out the 2017 trading year on Friday, when they had each posted a third consecutive day of good gains.

But WTI on Tuesday remained above the psychologically important $60 per barrel mark – the first time in recent memory it has held such lofty levels – as it settled down just 5 cents on the day $60.37 in New York Mercantile Exchange trading.

Brent meantime lost 30 cents a barrel in London futures trading on Tuesday, but still held to a robust settlement price of $66.57.

Chesapeake churns upward

A trader saw Oklahoma City-based oil and gas concern Chesapeake Energy’s 8% notes due 2027 “pretty active, probably on the heels of natural gas being up with the cold weather here in the northeast,” and other parts of the U.S.

He saw those notes having firmed by 1½ on the day, to 98 3/8 bid, with over $15 million having traded.

Natural gas closed Tuesday up around 4 cents per 1 million British Thermal Units (equivalent to 1,000 cubic feet) at just above $2.95, after having surged at one point during the day above $3; those levels are up sharply from the commodity’s recent low close of just above $2.59 per MMBtu, recorded on Dec. 21.

Analysts believe gas will continue to firm on increased demand with the freezing weather covering much of the U.S. not expected to break anytime before the middle of the month, at the earliest.

Other energy names gain

A market source noted that “other energy names were up as well” along with Chesapeake and CalRes.

He saw the 6¾% notes due 2022 of Ferrellgas LP, an Overland Park, Kan.-based distributor of propane and related equipment and supplies, up a deuce on the day at 95 bid.

Plano, Texas-based E&P operator Denbury Resources Inc.’s 6 3/8% notes due 2021 were ¾ point better, at 77 ¼ bid,

And Calgary, Alta.-based shale oil producer MEG Energy Corp.’s 7% notes due 2024 were about ½ point better, at 85¾ bid.

Stormy weather for Weatherford

However, a trader said that oilfield services concern Weatherford International’s 7¾% notes due 2021 “were active – but off about 1 point, on pretty good volume” of more than $18 million, ending at 101 bid.

A second trader said the notes were down from recent highs of 102 3/16 bid, seen last Wednesday.

Weatherford’s stock meantime dropped 17.03% to $3.46 at market close Tuesday – the first trading day since the company – based in Baar, Switzerland, with operational headquarters in Houston – announced it had abandoned its joint venture with Houston-based industry peer Schlumberger.

The stock was trading at 2 times their normal volume, a market source said.

“This is a horrible thing for them,” the source commented.

Weatherford announced later Friday that it had scrapped plans for a joint venture for its North American pressure pumping and well completion operations, opting instead to divest the business to Schlumberger for $430 million in cash.

Proceeds will be used to deleverage Weatherford’s $7.9 billion in debt, the company said.

Cleveland Cliffs climbs

Also in the resources area, iron ore producer Cleveland Cliffs’ 5¾% notes due 2025 traded up ½ point from where that issue had gone out last week, firming to 96¼ bid, on volume of about $12 million.

The Cleveland-based company’s gains were in line with a nearly 10% rise in its New York Stock Exchange-traded shares, which finished up 69 cents at $7.90, on 1½ times normal volume.

Other metals miners were also seen up during the day, market sources said, reflecting expectations of increased Chinese purchases of iron ore for its burgeoning settle industry.

Cleveland Cliffs’ recently priced 4 7/8% notes due 2024 were seen little changed on the day at 99½ bid, 100¼ offered, on not much volume. That $400 million regularly scheduled forward calendar issue had priced at 99.347 to yield 5% back on Dec. 5.

Recent Valeant, Mattel busy

Among other recently priced new deals, Valeant Pharmaceuticals’ 9% notes due 2025 edged up by 5/32 point Tuesday to close at 104 3/8 bid, with over $15 million traded.

The Laval, Que.-based drug manufacturer had priced its quickly shopped $1.5 billion deal – upsized from $1 billion originally – at 98.611 on Dec. 4, yielding 9.25%.

El Segundo, Calif.-based toymaker Mattel’s 6¾% notes due 2025 firmed 1/8 point on the day to just under 101 5/8 bid, with over 413 million changing hands.

It had priced that regularly scheduled $1 billion issue at par on Dec. 15.

Indicators stay strong

Statistical market performance measures were higher across the board for a second consecutive session on Tuesday; they had firmed on Friday after having been mixed before that.

The KDP High Yield Daily index rose for a fourth straight session on Tuesday, gaining 5 basis points to end at 71.87, after firming by 4 bps on both Thursday and again on Friday. The index was not tabulated on Monday due to the market’s holiday close.

Its yield came in by 2 bps to 5.26%, its second straight narrowing, having also declined by 3 bps on Friday.

The Markit Series 29 High Yield index edged up by almost 1/16 point Tuesday to 108 9/32 bid, 108 11/32 offered. On Monday – when it was tabulated despite the market close – the index had eased by around the same amount, after having gained 1/8 point on Friday.

The Merrill Lynch High Yield Index rose by 0.133% on Tuesday, raising its year-to-date performance for the new year to that same level.

It was the index’s first gain after having been unchanged on Friday, the last trading session of 2017, when it closed with a year-to-date gain of 7.468%.

It ended the year on Sunday with a cumulative return of 7.483%.

Abigail W. Adams contributed to this review

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