Junk steadies after opening 2016 with loss; Chesapeake gains, primary calm, but M&A deals expected

By Paul Deckelman and Paul A. Harris

New York, Jan. 5 – After stumbling right out of the gate during the first session of the new year on Monday, the high yield market seemed to find its footing on Tuesday.

Traders said the market – helped by a steadying trend in equities after Monday’s stock slide – built upon the mildly positive momentum that had been seen late in Monday’s session and finished Tuesday unchanged to higher in spots.

One of the most notable of those spots was Chesapeake Energy Corp., whose recently issued seven-year secured notes jumped several points and were the most actively traded credit in Junkbondland.

Even its existing unsecured notes were points better on the day, though on considerably less volume than the secured notes generated.

Chesapeake’s paper firmed despite world crude oil prices having fallen back for a second straight session on Tuesday.

That hurt other energy credits not armed with the Chesapeake bonds’ particularly favorable circumstances, notably Eclipse Resources Corp., whose bonds lost several points in active trading.

Away from the energy sphere, there were active dealings, all to the upside, in healthcare oriented names such as Community Health Systems Inc. and Valeant Pharmaceuticals International Inc.

The primary market meantime remained silent, with no pricings expected or seen – the last prior pricing took place way back on Dec. 11.

However, market sources were on Tuesday expressing confidence that things in the new-deal sphere would be picking up soon.

Bouncing back from Monday

In the secondary arena, a trader said Tuesday’s market “overall was unchanged – there were some credits up a bit, with Chesapeake obviously being one of them.”

Balancing that, he said, were other names that were down ¼ to ½ point.

That was in contrast to Monday’s session – the first of the new year – when things were pretty much down ½ point to 1 point or more in some cases, as high yield reflected the pessimism felt in equities; the latter fell sharply early in Monday’s session, pulled down by weakness in the overseas markets on the latest fears about China’s slowing growth, although it cut those losses in half by the end of the day.

That late momentum helped to push stocks marginally higher on Tuesday, with junk tagging along for the ride; the bellwether Dow Jones Industrial Average eked out its first gain after three straight losses, firming by 9.72 points, or 0.06%, ending at 17,158.66.

Chesapeake is the champ

The exception Tuesday was Chesapeake Energy’s bonds, particularly its new 8% senior secured second-lien notes due 2022.

A trader saw those bonds going home at 52 bid, a gain of 2¾ points on the day, with over $49 million having changed hands.

On Monday, the notes had moved up by ½ point to go out at 49¼ bid, on market-leading volume of over $19 million.

Monday was the first full trading day after the new notes settled on Thursday. They were issued as part of Chesapeake’s effort last month to cut its debt by offering the new secured bonds in exchange for a greater volume of existing bonds, with the company issuing a total of $2.35 billion of the 8s in exchange for around $3.8 billion of the old bonds.

A trader suggested “the bonds were probably up because it’s a new issue and everyone wanted to be in on it.”

Existing bonds seemed to be along for the upside ride. At another desk, a trader said “their [capital] structure is up ½ to 3 points, depending on the issue, with clearly, this one [i.e., the 8% 2022 notes] on the higher end.”

Chesapeake’s 3¼% notes coming due on March 15 gained ¾ point, to 97 bid, on volume of over $17 million.

Its 4 7/8% notes due 2022 jumped by 5 points, to 33 bid, on volume of about $4 million.

Other energy names off

Other energy credits did not share the good fortune Tuesday, as oil prices continued to weaken as investor angst about the slowing Chinese economy outweighed the current tensions between Mideast oil producers Iran and Saudi Arabia.

A notable loser was Eclipse Resources Corp., whose 8 7/8% notes due 2023 were down a deuce on the day at 44½ bid. Some $16 million of the State College, Pa. based oil and gas exploration and production company’s paper changed hands.

Healthcare activity seen

On the upside, Community Health Systems’ 6 7/8% notes due 2022 were among the busiest bonds of the day, second only to the Chesapeake secured paper.

The Franklin, Tenn.-based hospital operator’s gained 1/8 point, ending at 94 1/8 bid, with over $28 million having changed hands.

Canadian drug manufacturer Valeant Pharmaceuticals International’s 5 3/8% notes due 2020 were up almost 1 full point, at 94 3/8 bid, with over $16 million traded. Its 6 1/8% notes due 2025 ended at 90 bid, up 1¼ point, with over $14 million traded.

Indicators turn higher

Statistical measures of junk market performance turned higher across the board on Tuesday, rebounding from Monday’s all-around lower session.

The KDP High Yield Daily Index rose by 11 basis points on Tuesday to finish at 63.85, after having dropped by 17 bps on Monday.

Its yield came in by 7 bps, to 7.27%, after having risen by 6 bps on Monday.

It was the fourth such narrowing in the last six sessions.

The Markit Series 25 CDX North American High Yield Index improved by 3/32 point to close at 100 23/32 bid, 100 ¾ offered, its second gain in the last four trading days. That was in stark contrast to Monday, when the index fell by 17/32 point. Tuesday’s triumph was its second in the last four sessions.

The Merrill Lynch North American Master II High Yield index gained 0.322% on Tuesday, almost completely offsetting Monday’s 0.325% loss, which had been its first such downturn after seven straight sessions on the upside.

Tuesday’s gain cut its year-to-date loss to 0.004%, versus 0.325% on Monday.

The index had finished 2015 on Thursday with a 4.643% loss for the year.

© 2015 Prospect News.
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