Morning Commentary: Falling oil prices drag down sector; Intelsat drops post-earnings

By Paul A. Harris

Portland, Ore., Oct. 30 – Oil prices slid a further 2% on Tuesday, pulling down the sector and creating further headwinds for an exploration and production company that has been trying to issue new bonds, a trader said.

The barrel price of West Texas Intermediate (WTI) crude, which peaked above $76 in early October, has endured a precipitous slide through the remainder of the month. It fell another $1.35, or 2.01%, on Tuesday morning to $65.69.

The WTI barrel price has dropped 5.2% over the past week.

The California Resources Corp. 8% senior secured second-lien notes due December 2022, a benchmark issue some investors use to track the price of crude, was down 2½ points on the morning, the trader said.

The bonds of oilfield services provider Weatherford International plc were being destroyed, the trader said, marking them at 78, and adding that they traded at 90½ on Oct. 24.

Continued weakness in the price of oil is no doubt creating difficulties for the Woodlands, Texas-based oil and gas producer GEP Haynesville LLC, which has been attempting to place an offering of five-year senior notes (B3/B).

Market sources say the deal is downsized to $500 million from $600 million and talked with a 9% coupon at an original issue discount of 2 to 3 points.

The deal was marketed on a roadshow last week. Initial talk had $600 million coming to yield 8½% to 8¾%.

Away from the energy sector the bonds of Intelsat SA were volatile in active trading after the company reported that revenue in the most recent quarter came in slightly below guidance.

Intelsat also trimmed guidance for capital expenditures, citing a delay in satellite manufacturing milestones.

The Intelsat Jackson Holdings SA 8½% senior notes due October 2024 were off half a point at 97¾ bid at mid-morning, after having fallen as low as 96¾ bid earlier in the session.

Most recently the Luxembourg-based company priced a $700 million add-on to the 8½% senior notes at par ¾ on Oct. 2.

Meanwhile the most recent deal to clear the market was straddling issue price on Tuesday.

The Anixter, Inc. 6% senior bullet notes due December 2025 (Ba3/BB/BBB-) were 99 7/8 bid, par 3/8 offered early Tuesday, a market source said.

The $250 million issue priced at par in a Monday drive-by in the middle of yield talk in the 6% area.

The primary market

Recent volatility in the global capital markets has created difficulties for a handful of issuers attempting to place new junk bonds, sources say.

In addition to GEP Haynesville, deals in the market include INTL FCStone Inc.’s $350 million offering of five-year senior secured notes (Ba3/BB-) talked to yield 8½% to 8¾%, including an original issue discount. It was scheduled to price last Friday. There have been no updates in the interim, sources say.

In addition, there are two deals in the market that were scheduled to conclude roadshows on Monday: HC2 Holdings, Inc.’s $535 million offering of five-year senior secured notes (Caa1/B-) and Vector Group Ltd.’s $325 million offering of eight-year senior notes (B2/B-).

Jefferies is the bookrunner for both HC2 and Vector Group.

In the euro-denominated market, England-based flooring company Victoria plc started a roadshow on Monday for a €450 million offering of five-year senior secured notes (expected ratings BB-/BB), according to a market source.

Monday outflows

The cash flows of the dedicated high-yield bond funds were negative on Monday, a trader said.

High-yield ETFs sustained $417 million of outflows on the day.

Actively managed high-yield funds saw $375 million of outflows on Monday, the source said.

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