Morning Commentary: WPX junk bonds pop on merger news; primary quiet; outflows continue

By Paul A. Harris

Portland, Ore., Sept. 28 – The high-yield bonds of WPX Energy Inc. saw big upward price moves on news that the Tulsa, Okla.-based exploration and production company will merge with Devon Energy Corp. in an all-stock merger of equals valued at around $6 billion, a bond trader said.

The WPX Energy 4½% senior notes due January 2030 were 99 bid on Monday, up 7 to 8 points on the day, the trader said.

Bond investors appear to be quickly warming to the deal because both companies, which have operations in the Permian Basin, intend for the combined entity to be more diligent about liability management and debt repayment, as energy prices remain under pressure.

Both stocks are on a tear, the trader added, noting that WPX shares (NYSE: WPX) were up over 9% at mid-morning on Monday, while Devon Energy (NYSE: DVN) stock was up 5½%.

Elsewhere, news that Cleveland-Cliffs Inc. will acquire ArcelorMittal USA for a combination of cash and stock, provided a nice bump for Cleveland-Cliffs bonds, the trader said.

The Cleveland-Cliffs 9 7/8% secured notes due October 2025 were up 3 points at 112 bid on Monday morning.

The deal values the U.S. operations of ArcelorMittal at $1.4 billion, which will be paid with $505 million in cash, and the remainder in equity.

Among recent issues the Varex Imaging Corp. 7 7/8% senior secured notes due October 2027 (B1/B) were up half a point on Monday at 103¼ bid, 103¾ offered, versus 102½ bid, 103½ offered late Friday, the trader said.

The $300 million issue priced at par on Friday.

With equities on a tear, on Yom Kippur Monday, cash bonds were up anywhere from ¼ point to 1 point, the trader said.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 51 cents, or 0.61%, at 83.46 per share at mid-morning.

Meanwhile the primary market was quiet as the holiday session got underway.

The active new issue calendar was empty.

Friday outflows

The dedicated high-yield bond funds continued to see negative cash flows as last week closed out, sustaining $324 million of daily net outflows on Friday, according to a market source.

Actively managed high-yield funds saw $280 million of outflows on the day.

High-yield ETFs sustained $44 million of outflows on Friday, the source said.

Friday was the first in five days where outflows to the combined funds came to less than $1 billion, according to the market source.

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