Post-holiday distressed bond market quiet, energy issues seen mixed; miners better

By Paul Deckelman

New York, Jan. 19 – Traders in distressed debt saw a relatively quiet post-holiday session on Tuesday, in line with a calmer overall high yield bond market, which reopened following Monday’s market close for the Martin Luther King Jr. holiday.

Traders said that bond trading began the day on a firm note, in line with early gains in the equity markets, but then backed off its peak levels as stocks retreated around them middle of the session, only to come back to end the day somewhat higher.

All told, the traders said, things were a mixed bag.

In the energy space, crude oil prices were mixed on the day, with benchmark U.S. crude grade West Texas Intermediate falling to midday lows below $28 per barrel not seen since September of 2003, before finally improving but still ending down on the day, while international benchmark Brent crude firmed slightly on the day.

That pushed and pulled oil and natural gas bonds in every direction.

Among the higher finishers were credits such as WPX Energy Inc., Memorial Production Partners, LP, California Resources Corp. and EP Energy Corp.

But downsiders within the sector included Chesapeake Energy Corp., Concho Resources Inc. and, particularly, Whiting Petroleum Corp.

In the convertibles market, WPX’s mandatory convertibles were sharply lower – though not as badly hit as the company’s shares.

Recently beleaguered iron-ore miners like FMG Resources PTY Ltd. and Cliffs Natural Resources Inc. were higher on the day.

Early gains moderate

A high yield trader said that “the market came out of the gate this morning stronger, along with the equity market when [stocks] were rallying,” bouncing back from big losses recorded on Friday.

However, those early gains on both the stock and bond side faded as shares fell around midday, although stocks did come back later on in the session.

For instance, the bellwether Dow Jones Industrial Average – which had ended Friday with a nearly 400-point loss – jumped by 183 points in early trading, then slid to an 88-point mid-afternoon deficit, before bouncing off those lows to end with a modest gain of 27.94 points, or 0.17%, at 16,016.02. Other, broader indexes had similar trajectories on the day.

Those gyrations were felt in junk bonds, which gave up their early gains to mostly end about unchanged or “a little worse,” the trader said, although he allowed that there were significant exceptions to the rule.

Energy issues mixed

In the energy arena, one of the traders noted that “some of the ones that got beat up last week were up a little.”

For instance, he said that WPX Energy’s 5¼% notes due 2017 gained more than 1 point on the day, ending at 93½ bid.

Another trader saw the Tulsa, Okla.-based exploration and production company’s paper up 1½ points, at 93¾ bid, with over $14 million traded.

Other energy credits were also better, despite the fall in West Texas Intermediate crude. The February contract – which was expiring on Tuesday – plunged as low as $27.92 per barrel during the session, its lowest level since September of 2003. WTI eventually recovered some, but not all, of its lost ground, settling in at $28.46 on the New York Mercantile Exchange, down 96 cents on the day.

Brent crude was not much better; gaining 21 cents per barrel, or 0.7% to end London ICE Futures Exchange trading at $28.76.

Nonetheless, crude credits like Houston-based Memorial Production Partners’ 7 5/8% notes due 2021 were up 5/8 point on the day to end at 25¾ bid, with over $13 million traded.

EP Energy Corp., also Houston-based, was likewise higher on the day, a trader said, with its 9 3/8% notes due 2020 gaining ¼ point, to end at 35½ bid, on “pretty decent volume” of over $9 million.

Los Angeles-based California Resources Corp.’s 8% notes due 2022 finished up ¾ point at 42¼ bid, with about $8 million changing hands.

However, some oil and gas credits continued to hug the downside.

Chesapeake Energy Corp.’s 8 % notes due 2022 dropped by 1½ points on the day to end at 44 bid; more than $10 million of the Oklahoma City oiler’s bonds traded.

Midland, Texas-based Concho Resources’ 5½% notes due 2023 lost ½ point, ending at 86½ bid, with over $9 million moving around.

But the big loser was Whiting Petroleum. The Denver-based E&P company’s 5% notes due 2019 nosedived by 1¾ points to finish at 59¾ bid, with over $9 million trading, while its 6¼% notes due 2023 lost 1½ points, going out at 56½ bid, on volume of over $8 million.

WPX convertibles retreat

In the convertibles market, WPX Energy’s mandatory converts traded down on Tuesday, a trader said, though not by as much as its common shares, which were downgraded to “equal weight” from “overweight” by CapitalOne.

The mandatory convertibles fell by $2.35, or 9.4%, to $22.65. But the WPX common shares slid 61 cents, or 14%, to $3.82.

However, for the most part on Tuesday, convertible energy credits were eerily quiet, as the ongoing slide in crude oil prices and energy stock and bond prices sapped liquidity.

“At this point liquidity in high-yield energy names is nonexistent,” a market source said. He said that even if there was a rebound in oil prices now – they are down around 20% on the year so far – it is too late to avert many bankruptcies.

“Even if they recover, it doesn’t matter. The bank facilities are reevaluated in the first quarter,” he said, and that points to bankruptcies in the March-to-April time frame.

He said that the specter of one bankruptcy after another was fueling weakness in the broader markets. But a second convertibles source said that his firm expects the high-yield market will be able to avert a number of bankruptcies by doing debt-to-equity swap deals instead.

Metals miners move up

Away from energy and back among straight junk bonds, the metals-mining sector – which has recently been under pressure due to declining orders from China and other global economies – was solidly higher on Tuesday.

Australia’s FMG Resources, a unit of Fortescue Metals Group, was one of the day’s big winners, with its 9¾% notes due 2022 jumping more than 2 points, to 83¼ bid. Over 412 million of those bonds changed hands.

Cleveland-based Cliffs Natural Resources’ 8¼% notes due 2020 were up by 11/16 point, ending at 69¾ bid, with over $10 million traded.

Rebecca Melvin contributed to this review.

© 2015 Prospect News.
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