QEP rises on buyout news; Western Digital rises; energy gains continue; WeWork drops

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 7 – While the high yield market’s tone continued to improve on Monday, the primary market remained dormant.

While there has yet to be signs of life from the primary market, Monday marked another strong day for the secondary space.

Credit spreads continued to tighten with the energy sector continuing to lead the overall market higher.

California Resources Corp.’s 8% senior notes due 2022 continued their upward momentum, climbing another 2½ points after large gains during Friday’s session.

QEP Resources Inc.’s junk bonds jumped 3 to 6 points after Elliot Management made a $2 billion bid for the oil and gas company.

Western Digital Corp.’s split-rated 4¾% senior notes due 2026 (Baa3/BB+) were again among the most actively traded issues in the secondary space with the notes making gains as U.S. and China restart trade negotiations.

While the overall market was on the rise on Monday, WeWork Cos. Inc.’s 7 7/8% senior notes due 2025 slid 2½ points after SoftBank dialed down its planned investment in the company.

Energy gains continue

The gains in the energy sector continued on Monday with crude oil futures continuing to climb.

California Resources’ 8% senior notes were again active and posting gains.

The notes were up 2½ points to close the day at 78½, a market source said.

They were up over 3 points to trade north of 79 in intraday trading, the source said.

More than $17 million of the bonds were on the tape by the late afternoon.

The 8% notes climbed more than 5 points on Friday to close the day around 76, sources said.

The barrel price of WTI crude oil for February delivery continued its upward momentum on Monday.

Crude oil futures again shot passed $49 in intraday trading but settled at $48.52, an increase of 56 cents of 1.17%.

QEP’s bid

QEP Resources’ junk bonds saw large gains on Monday after news broke Elliott Management made a $2 billion bid for the company.

QEP’s 5 5/8% senior notes due 2026 were up 6¼ points to 91¾, according to a market source. More than $14 million of the bonds changed hands during Monday’s session.

While less active with only $2 million of the bonds changing hands, QEP’s 5 3/8% senior notes due 2022 rose 3¼ point to 97.

Elliott Management offered $8.75 per share for the Denver, Colo.-based oil and gas company. The takeover bid is contingent on QEP’s sale of its Haynesville assets, which the company announced on Nov. 19.

However, the proposal is not contingent on QEP’s Williston asset sale, which it announced on Nov. 7.

Western Digital gains

Western Digital’s split-rated 4¾% senior notes due 2026 were among the most actively traded issues during Monday’s session with the notes on the rise.

The 4¾% notes were up 1¼ points to 90½ on Monday with more than $21 million of the bonds on the tape.

The notes were also in focus last Thursday as Apple suppliers took a hit after Apple slashed its revenue forecast due to slowing iPhone sales in China.

About 13% of Western Digital’s revenue in fiscal year 2018 came from Apple.

While active last Thursday, the notes were largely trading flat. The 4¾% notes jumped 2 points on Friday alongside the overall market.

WeWork drops

WeWork’s 7 7/8% senior notes due 2025 dropped 2½ points on Monday after SoftBank scaled back its investment in the company.

While volume was light, the 7 7/8% notes traded down to 86½, a market source said. About $4 million of the bonds changed hands during Monday’s session.

News broke Monday that SoftBank scaled back its planned investment in the company to $2 billion from a previously discussed $16 billion, which would have given SoftBank a controlling interest in the company.

However, there was pushback on the $16 billion investment, which would have come from SoftBank’s Vision Fund.

The government-backed funds of Saudi Arabia and Abu Dhabi, investors in the Vision Fund, reportedly balked at the WeWork investment.

The scaled back investment will not involve the Vision Fund but will come from SoftBank directly, TechCrunch reported.

WeWork’s 7 7/8% notes have struggled since pricing at par in April with the notes trading below par for the majority of their existence.

However, the notes approached par in August after releasing second-quarter financial information and news broke about SoftBank’s additional investment in the co-working space company.

While the notes were down 2½ points from Friday’s close, the 7 7/8% notes closed November at 94, a market source said.

Monday was the lowest level for the notes since they priced.

Mixed Friday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Friday, the most recent session for which data was available at press time, according to a trader.

High-yield ETFs saw $383 million of inflows on the day.

However, actively managed high-yield funds sustained $265 million of outflows on Friday, the trader said.

Index gains continue

Indexes continued to post large gains on Monday after skyrocketing on Friday.

The KDP High Yield Daily index rose 49 basis points to close Friday at 67.93 with the yield now 6.75%.

The index rose 78 bps on the week last week with 70 bps of the gain coming on Friday.

The ICE BofAML US High Yield index rose another 78.4 bps with the year-to-date return now 2.078%. The index jumped 109.9 bps on Friday after a solid streak of gains since the new year.

The index closed 2018 with a year-to-date return of negative 2.265%.

The CDX High Yield 30 index rose 62 bps to close Monday at 103.42. The index jumped 137 bps on Friday, marking its largest single day gain in four years.

The index saw a cumulative gain of 78 bps on the week last week.

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