Morning Commentary: Junk opens unchanged to slightly weaker; Energy XXI Gulf Coast bonds drop

By Paul A. Harris

Portland, Ore., Sept. 15 – The high-yield market was unchanged to slightly weaker heading into the Tuesday mid-morning, according to a trader on the East Coast of the United States.

High-yield exchange traded funds were slightly lower.

The iShares iBoxx $ High Yield Corporate Bd (HYG) were down a penny at $86.34 heading into mid-morning.

SPDR Barclays High Yield Bond ETF (JNK) was trading at $37.00, down 4 cents.

The high-yield primary market remained quiet heading into Tuesday morning.

The market continues to focus on Frontier Communications Corp.'s recently issued senior bullet notes (Ba3/BB-), which priced last Friday in three tranches totaling $6.6 billion, the trader said.

Although the new Frontier bonds continued to trade at premiums to their new issue prices on Tuesday morning, they were all down about ¼ point on the day.

The Frontier 8 7/8% notes due Sept. 15, 2020 were par ¾ bid, 101¼ offered heading into mid-morning. The notes priced at par in a tranche sized at $1 billion.

The 10½% notes due Sept. 15, 2022 were 101 bid, 101½ offered. The notes priced at par in a tranche sized at $2 billion.

The long tranche, the 11% notes due Sept. 15, 2025, which played to the greatest demand on Friday, were par ¾ bid, 101¼ offered. The notes priced at par in a tranche sized at $3.6 billion.

Energy XXI Gulf Coast active

Bonds of Energy XXI Gulf Coast, Inc. were lower in active trading on Tuesday.

Energy XXI Ltd. has announced that its means of accounting for derivative financial instruments as cash flow hedges in connection with its crude oil and natural gas hedging program lacked specificity of the hedged items, and therefore consolidated financial statements for the years ended June 30, 2014, 2013, 2012 and 2011 and for the quarters ended Sept. 30, 2014 and 2013, Dec. 31, 2014 and 2013, March 31, 2015 and 2014 and June 30, 2014 should no longer be relied upon.

The company subsequently filed to delay further reporting on the matter.

The Energy XXI Gulf Coast 11% senior secured second-lien notes due March 15, 2020 were 59 bid, 60 offered on Tuesday, according to the trader.

The bond, which priced at 96.313 to yield 12% in a $1.45 billion issue last March, had recently been trading in the mid-60s, the trader added.

Teck Resources trades lower

Bonds of Teck Resources Ltd. were lower on Tuesday as Moody’s Investors Service said it downgraded Teck Resources’ senior unsecured rating to a speculative grade Ba1 from an investment-grade Baa3, with a negative outlook.

The metals and mining company’s 4¾% notes due 2022, which continue to be traded on the investment-grade desk, were 78½ bid, 79 offered on Tuesday, down 4 points on the downgrade news.

The notes were trading at 82 bid, 82½ offered on Monday.

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