Battered energy names rebound on oil price rise, though converts lag; Sprint bounces back

By Paul Deckelman

New York, Jan. 21 – Distressed-debt traders said that bonds of troubled companies, particularly in the beleaguered energy sector, mounted an impressive turnaround on Thursday, helped by improvements in both stocks and, especially, oil. The market had been roundly beaten down on Wednesday amid lower oil prices and a broad retreat in the equity markets.

A 4% rise in crude prices, despite another big addition to United States crude stockpiles, helped lift the recently hard-hit bonds of exploration and production companies such as Whiting Petroleum Corp., Oasis Petroleum Inc., WPX Energy Inc. and Genesis Energy, LP, among others.

However, convertible bonds of some of the energy names, notably Whiting, remained weaker despite the upturn in the company’s straight paper and its shares.

In the emerging markets space, sovereign debt of oil-dependent Latin American countries such as Venezuela and Colombia got a boost from the oil-price gain, as did the Venezuelan and Mexican state-owned oil monopolies, PDVSA and Pemex.

Away from the energy names, Sprint Corp.’s junk bonds were seen higher across the board, in contrast to Wednesday’s selloff. Among the big gainers were the Number-Three U.S. wireless carrier’s 7% notes due 2020, which had nosedived by more than a dozen points on Wednesday.

Market bounces back

Traders saw the high yield market – particularly its embattled oil and natural gas exploration and production sector – coming back on Thursday after having been mostly beaten down on Wednesday when stocks and oil prices had led the way downward.

On Thursday, both of those other markets finished in positive territory, helping to provide a lift for junk credits.

The Dow Jones Industrial Average was in the green pretty much all day – quite a turnaround from Wednesday – finishing up 115.94 points, or 0.74%, at 15.882.68. Other broader market indexes exhibited similar trajectories.

Stocks rose on a combination of investor optimism after the head of the European Central Bank indicated that more stimulus moves would be forthcoming there and a more than 4% upturn in crude oil prices.

The March contract for the benchmark U.S. crude oil grade, West Texas Intermediate jumped by $1.18 per barrel, to $29.53, while the March contract for the benchmark international grade, Brent crude, soared by $1.37 per barrel to $29.25 – the first upturn for both after three straight days of losses.

Crude rose despite a report by the U.S. Energy Information Administration showing U.S. crude stockpiles having increased by nearly 4 million barrels in the latest week; colder temperatures in the Northeastern U.S. and in Europe were seen boosting demand for refined products such as heating oil.

With those kind of positive tailwinds, “we saw a snapback” in energy credits,” a trader said.

“The weakest things were bouncing back the most” after having gotten a thorough drubbing on Wednesday.

One of the big gainers was Tulsa, Okla.- based exploration and production operator WPX Energy, whose bonds had been taken down by multiple points on Wednesday and during several previous sessions as well.

Its 5¼% notes due 2024 were 2 points higher, a market source said, pegging them at just over 48 bid, with over $14 million traded.

Its 5¼% notes due 2017 were 1/8 point better at 93¼ bid, on similar volume.

A trader said that Houston-based Genesis Energy’s paper “bounced back smartly” from its recent weakness, with its 6¾% notes due 2022 climbing 4½ points on the session to 73¾ bid, with over $12 million trading hands.

“Oil rallied more than $1, and those names followed suit,” another trader said, seeing Houston-based Oasis Petroleum’s 6 7/8% notes due 2022 jump more than 6 points on the day to 47¼ bid, with over $10 million traded, while its 7¼% notes due 2019 rose 4¼ points, ending at 49¼ bid.

Denver-based Whiting Petroleum’s paper “had a nice little snap-back,” one of the traders said, seeing its 5¾% notes due 2021 bouncing more than 4 points to 55 bid, though he said that it was “on only a handful of trades.”

While the 6¼% notes due 2023 were about unchanged at 53 bid, he said, its 5% notes due 2019 were ¼ point higher “on a couple of trades.”

In the natural gas space, a trader said that Houston-based storage and transportation company Sabine Pass Liquefaction’s 5 5/8% notes due 2021 gained 2½ points to 87½ bid, while its 5 5/8% notes due 2025 were also up 2½ points at 80 bid.

Energy converts weaker

In the convertibles market, though, energy and some of the harder-to-borrow converts remained weak on Thursday despite the bounce-back in crude oil prices and gains in most equity prices, including for some of the severely beaten-down energy companies.

“The current trends remained intact,” a trader said of the convertibles market. Energy and some of the convertibles that have underlying stock that is difficult to borrow have borne the brunt of the downdraft while the rest of the convertibles market has been fairly stable, he said.

Whiting Petroleum has been one of the names that has been trading consistently weaker in recent weeks. The Whiting 1.25% convertibles due 2020 were trading around 45 bid, 46 offered in the early going Thursday, compared to the underlying common shares, which were at $5.44.

The Whiting bonds had been above 70 not too long ago and the stock, which was up 18% on Thursday, has fallen 38% since Dec. 31.

Emerging energy issues do better

In the emerging markets space, traders said that high-yield names from the region also performed well on Thursday, helped by the gain in oil prices, with Venezuela sovereign bonds and Petroleos de Venezuela SA’s debt moving higher. Venezuela’s sovereign 2027s closed at 34, up from 33 while PDVSA’s 2017s finished at 42, up from 40.

“Client flows were on the lighter side today, although Street volumes did pick up,” one trader said. “Hopes are that we can get through the overnight session with positive momentum.

Mexico-based Petroleos Mexicanos SAB de CV “caught a bid, with lots of buying from locals and retail and private bank accounts in size,” another trader said.

“Colombia was also roughly 10 bps to 15 bps tighter.”

Sprint snaps back

Away from energy or energy-related issues. another major feature of Thursday’s session was the strong comeback in Sprint Corp. bonds, which had been beaten down on Tuesday and again on Wednesday on analyst and investor skepticism about the debt-laden Overland Park, Kan.-based Number-Three U.S. wireless carrier’s plans to radically cut costs as a means of improving its overall situation.

“They were way down yesterday [Wednesday], 5 points, 8 points or more, while today they were bouncing back, 2 points or 3 points,” a trader said.

“Their whole structure was very active today,” another trader added, seeing its various bonds up anywhere from ½ point to 3 points, depending where in the structure they are.”

For instance, Sprint’s 12% notes due 2020, which plunged by more than 12 points on Wednesday, got back 3 of those points on Thursday, rising to 63¾ bid, with over $17 million traded.

A market source noted that other than one issue from steelmaker ArcelorMittal SA – its 10.85% notes due 2019 rose ¾ point to 87¼ bid, with over $28 million traded – the junk Most Actives list was dominated by the various Sprint issues on Thursday.

Sprint’s most active bonds were its 7 7/8% notes due 2023, with over $27 million changing hands, and its 6% notes due 2022 with over $24 million of volume. The former rose 1 7/8 points to 62¼ bid, while the latter gained ¾ point, ending at 60¾ bid.

Its 6 7/8% notes due 2028, along with the 7% notes, were the biggest gainer in the Sprint capital structure on Thursday, rising by 3 points to end at 59½ bid, with over $21 million changing hands.

-Rebecca Melvin and Christine Van Dusen contributed to this review

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