Morning Commentary: Diamondback bonds mixed on Energen acquisition news; primary quiet

By Paul A. Harris

Portland, Ore., Aug. 16 – Bonds of Diamondback Energy, Inc. have been mixed in the wake of its announcement that it will acquire Energen Corp. in an all-stock deal valued at about $9.2 billion, a trader said on Thursday.

The Diamondback Energy 4¾% senior notes due November 2024 were up 1½ points at 101 bid.

However, the longer-maturity Diamondback 5 3/8% senior notes due May 2025 were 3/8 of a point to ½ point lower at 102¾ bid, down from 103 1/8 bid.

Energen’s high-grade bonds, the 4 5/8% senior notes due September 2021, which the trader referred to as yield-to-call paper subsequent to the announcement of the acquisition, did not appear to be trading, the source said.

The Energen acquisition was Diamondback’s second in the space of a week.

On Aug. 8 Diamondback announced it will acquire Ajax Resource LLC in a cash-and-stock transaction worth about $1.25 billion.

Elsewhere in the energy sector, bond prices appeared generally unchanged as crude oil prices were see-sawing into the Thursday lunch hour.

The California Resources Corp. 8% senior secured second-lien notes due December 2022, a benchmark issue which is said to trade in close correlation with crude oil prices, were 86¼ bid at mid-morning.

That paper was 88 bid, 88½ offered earlier in the week.

Crude oil prices, which staged a modest recovery early Thursday morning, slipped back into the red by mid-morning when the barrel priced of West Texas Intermediate crude for September 2018 delivery was 4 cents, or 0.06%, lower on the day at $64.97.

Recent issues

Among energy sector bonds issued in the past week, the Denbury Resources Inc. 7½% senior secured second-lien notes due Feb. 15, 2024 (B3/B+) were unchanged at par ¼ bid, on Thursday.

The upsized $450 million issue (from $400 million) priced at par in a Tuesday drive-by.

Away from the energy space, the new Frontdoor, Inc. (ServiceMaster Global Holdings, Inc.) 6¾% senior notes due Aug. 15, 2026 (B2/B-) traded at 101¾ on Thursday, unchanged, the trader said.

The bonds were seen at 101½ bid, 102 offered on Wednesday.

The $350 million issue priced at par on Tuesday, 12.5 basis points below the tight end of yield talk in the 7% area.

And looking at the one of the biggest and most highly leveraged deals since the beginning of August, the BMC Software (Banff Merger Sub, Inc.) 9¾% notes due September 2026 were lagging new issue price at 99 7/8 bid, par offered on Thursday.

The $1,475,000,000 deal priced at par on Aug. 9.

Quiet primary

The primary market was quiet on Thursday morning.

Starwood Property Trust, Inc. is in the market with a $300 million offering of five-year senior bullet notes (Ba3/BB).

It was marketed by means of a Tuesday conference call with investors, and was expected to price on Wednesday.

However, there was no news on the deal, with sources speculating that it had been sidelined by market volatility.

Away from that one active issue, drive-by deals are possible prior to Labor Day, sources say.

No new roadshow announcements are expected before the extended holiday weekend – the traditional summer-fall dateline in the debt capital markets – set to get underway following the Aug. 31 close.

The post-Labor Day new issue market is expected to pick up, with the driving force being a substantial pipeline of merger and acquisition financing, sources say.

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