Primary silent; secondary market down double digits; energy sector craters

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 9 – The domestic high-yield primary market was silent on Monday as the secondary space plunged double digits with the energy sector cratering, a sector that makes up about 15% of the high-yield index.

The overall market was down 10 to 20 points, a market source said.

Energy was down 20 plus points with the worst hit by the sell-off in crude oil futures down more than 40 points.

Oasis Petroleum Inc., Nabors Industries, Cenovus Energy, and SM Energy Co. were among the heaviest hit in the sector but “the list goes on and on,” a source said.

The downward trajectory of several recent deals from the sector intensified. Transocean Inc.’s 8% senior notes due 2027 and WPX Energy, Inc.’s 4½ senior notes due 2030 were also down double digits.

Primary remains quiet

The high-yield primary market remained silent on Monday, sidelined by capital markets’ volatility, a senior syndicate official said.

Sizing up the volatility in junk, the banker pointed to the CDX High Yield Index of credit default swaps which dropped five points on the day.

Characterizing Monday as a violent ride, the source said that cash bonds, depending upon the name, were down several points.

Against such price moves, floating a new speculative-grade issue becomes extremely difficult, the syndicate banker said.

One deal is thought to still be in the market.

Del Monte Foods Inc. intends to place $575 million of seven-year senior secured notes (Caa2/CCC+).

The San Francisco-based food production company plans to use proceeds from the deal now being shopped in an effort to refinance its capital structure.

There was no news on the deal on Monday, sources said.

A scary day

After a volatile few weeks, panic began to rear its head in the secondary space with the market getting crushed on the heels of the sell-off in crude oil futures.

“It was a scary day,” a market source said.

Energy, industrials, communications, travel, and consumer discretionary were all taking a hit.

The market, in general, was down 10 to 20 points with the energy sector down 20 to 30 points, a market source said.

While the market was tumultuous on Monday, volume remained light with many on the sidelines.

“A lot of accounts did nothing,” a source said.

With many still in wait-and-see mode, the future direction of the market may depend largely on the actions accounts take when they reactivate – whether they will be buying or selling, the source said.

The hardest hit

While the overall market was getting crushed on Monday, exploration and production companies in the energy sector were among the hardest hit.

Pipeline and midstream companies were also in free fall, a source said.

The worst names in the sector took off about 40 points – and those names were plentiful.

Oasis Petroleum’s 6 7/8% senior notes due 2022 dropped 42 points and stood poised to close the day at 31¾.

The 6 7/8% senior notes due 2023 were also down about 40 points to close the day at 33.

SM Energy’s capital structure was down 30 to 40 points, according to a market source.

The 5 5/8% senior notes due 2025 were down 33 points to 40. The 6 5/8% senior notes due 2027 dropped 30 points to 42.

The 6 ¾% senior notes due 2026 were also down 30 points to 42.

Cenovus Energy’s 6¾% senior notes due 2039 were down about 40 points to 84¾.

Recent deals

Several recent deals were also among the hardest hit of Monday’s session.

Nabors Industries’ 7¼% senior notes due 2026 were down about 35 points to 53¼, according to a market source.

The 7½% senior notes due 2028 dropped 33 points to 55.

Nabors priced a $600 million tranche of the 7¼% notes and a $400 million tranche of the 7½% notes at par in early January.

They were trading in the mid- 80s at Friday’s close.

Transocean’s 8% senior notes due 2027 fell 26¼ points to 52¼ in high-volume activity, a market source said.

The bonds saw more than $32 million in reported volume heading into the market close.

Transocean priced a $750 million issue of the guaranteed senior notes at par in early January.

WPX Energy’s 4½ senior notes due 2030 dropped 14½ points to 78 with $23 million on the tape.

WPX Energy priced a $900 million issue of the 4½% notes at par in early January.

The notes were selling off despite a recent upgrade from Fitch Ratings of WPX Energy’s senior unsecured debt ratings to BBB- from BB.

Fitch upgraded the debt due to WPX Energy’s recently closed acquisition of Felix Energy.

WTI crude oil futures settled at $31.13, a decrease of $10.15, or 24.59% and Brent crude oil futures settled at $34.36, a decrease of $10.91 or 24.1%.

It was the single largest drop in crude oil futures since the 1991 Gulf War.

Futures plummeted on Monday as Saudi Arabia launched a price war in retaliation for Russia’s opposition to OPEC’s planned production cut.

Indexes open week in the red

Indexes opened the week in the red.

The KDP High Yield Daily index was down 2.96 bps to 65.88 with the yield now 6.68%.

While the index wavered between gains and losses, it eked out a cumulative gain of 50 bps on the week last week.

The ICE BofAML US High Yield index plummeted 353.8 bps with the year-to-date return now negative 5.532%. The index crossed into negative territory as recently as last week when it posted a cumulative loss of 41.4 bps.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.