Morning Commentary: Energy bonds steady as crude oil rallies; ETFs see Thursday outflow

By Paul A. Harris

Portland, Ore., Aug. 24 – Energy bonds were steady against a backdrop of rallying crude oil prices on Friday, sources said.

The barrel price of West Texas Intermediate crude oil for October 2018 delivery was up $1.27, or 1.87%, at $69.10 at mid-morning.

Despite the rallying crude price, the California Resources Corp. 8% senior secured second-lien notes due December 2022 remained relatively stable in the high 80s – 88 bid, 89 offered – according to an investor.

However, California Resources’ share price was up sharply on Friday, the investor said, spotting the shares at $35.33 Friday morning, up from $28.69 on Aug. 15, but still lagging July prices in the mid-to-high $40 context.

Among recent energy issues the Matador Resources Co. 5 7/8% senior notes due September 2026 (B2/BB-) were straddling 101 on Friday morning, the investor said.

Earlier in the week that paper was lagging new issue price, at 99 1/8 offered, according to a bond trader.

The $750 million issue priced at par on Aug. 7.

Away from energy the bonds of Avantor, Inc. (VWR International LLC) were up a couple of points on the day on good earnings, the investor said.

Quiet primary

The major currencies primary market remained quiet on Friday and is expected to stay quiet until Sept. 4, when the extended Labor Day holiday weekend concludes.

At that point the new issue market is expected to begin working through a sizable mergers and acquisitions deal pipeline as well as some opportunistic debt refinancing deals, pending market conditions.

The biggest deal on the fall radar is from Refinitiv, with $5.5 billion equivalent of secured and unsecured notes in dollars and euros, backing the acquisition of a 55% stake in Thomson Reuters Financial & Risk by Blackstone and Canada Pension Plan Investment Board.

Anticipated September deals in the $1 billion-plus category also include Envision Healthcare Corp. with $2.15 billion and AkzoNobel NV with €1.5 billion.

ETFs see Thursday outflow

High-yield ETFs sustained $153 million of outflows on Thursday, the investor said.

Asset managers were flat on the day, the source added.

News of the Thursday daily flows trails a late Thursday afternoon report that the dedicated junk funds saw $344 million of net inflows in the week to the Aug. 22 close, according to AMG Data Services Inc.

It was the fourth consecutive positive flow; however, year to date the flows are heavily skewed toward the negative, with 13 weeks of inflows thus far in 2018 versus 21 weeks of outflows.

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