Morning Commentary: Improved crude price, earnings push energy names higher; SPX Flow launches

By Paul A. Harris

Portland, Ore., Aug. 3 – Improved crude oil prices and earnings reports from high-yield energy companies that tended to be more resilient than the market anticipated paved the way for firmer prices in the energy sector on Wednesday morning, a trader said.

Names included Concho Resources Inc., Targa Resources Corp. and Range Resources Corp., the source said.

The SM Energy Co. 6½% notes due Jan. 1, 2023 (B3/B+) were up a point at 84½ bid on good earnings numbers, the trader said.

Away from the energy sector high-yield bonds were unchanged to slightly better at mid-morning.

Bonds of Community Health Systems, Inc. were higher on the morning, possibly on short covering, the trader said.

The hospital company’s bonds fell dramatically on Tuesday as Community Health missed earnings and lowered guidance.

The FWCT-2 Escrow Corp. (Community Health Systems, Inc.) 6 7/8% senior notes due Feb. 1, 2022 were 83½ bid, 84 offered at mid-morning, after falling as low as 81½ bid, post-earnings on Tuesday.

Prior to earnings that paper was 86 bid, 86¾ offered, the trader recounted.

Community Health's poor earnings was pressuring other names in the high-yield hospital sector, including Hospital Corporation of America (HCA) and Tenet Healthcare, the trader said.

ETFs active

High-yield ETFs were dominating trading activity in the market on Tuesday, the trader said.

Over 40% of HYG names Trace'd on Tuesday, whereas on a typical day only 15% might do so, the source remarked.

There were a lot of bids-wanted-in-competition (BWIC) lists, the source said.

Also the high-yield ETFs sustained their second consecutive big daily cash outflow, $476 million, on Tuesday. That negative flow trails Monday's $397 million outflow.

Actively managed high-yield funds, meanwhile, were flat to slightly negative on Tuesday, sustaining $5 million of outflows on the day.

The primary

In the primary market SPX Flow, Inc., plans to price $600 million of senior notes in two tranches on Thursday.

The deal includes eight-year notes with early guidance in the 5¾% area and 10-year notes with early guidance in the 6% area.

BofA Merrill Lynch is the lead among a syndicate of banks running the debt refinancing deal.

Among deals on the road, Avon Products, Inc.'s $400 million offering of six-year senior secured notes could grow pending demand, a trader said.

Early guidance has the deal coming in the 8% area, and it could price on Thursday.

A lot of high-yield portfolios are believed to presently be underweight in the consumer products sector, and the recent Revlon Inc. $450 million issue of 6¼% senior notes due Aug. 1, 2024 (B3/B+) went well, the source said.

To recap, that deal priced at par on July 21 in an issue that was upsized from $400 million.

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