Pre-holiday primary quiet to end week; Chesapeake up on repayment news, Whiting slides

By Paul Deckelman and Paul A. Harris

New York, Feb. 12 – The high-yield market closed out the week on Friday with a quiet pre-holiday session ahead of Monday’s Presidents Day break in the United States.

Syndicate sources reported no pricings of new deals during the session.

That left the week’s new-issuance figure at $591 million in two tranches of U.S. dollar-denominated and fully junk-rated paper, according to data compiled by Prospect News, down from the $3.515 billion that priced in five tranches last week, ended Feb. 5.

The week’s new issuance brought year-to-date primaryside activity to $10.029 billion in 17 tranches, some 71.8% behind the new-deal pace seen a year ago, when $35.627 billion of such paper had priced in 57 tranches by this point on the calendar in 2015.

Away from the new-deal arena, Chesapeake Energy Corp.’s bonds firmed on the company’s plans to take out an issue of notes maturing next month.

But Whiting Petroleum Corp.’s paper was down across the board after Moody’s Investors Service slashed the oil and natural gas company’s debt ratings.

Statistical measures of junk market performance turned higher across the board on Friday after having been lower on Thursday and mixed on both Tuesday and Wednesday.

However, they were lower versus where they had been last Friday, their second straight weekly downturn.

Primary silent

The new issue market produced no news whatsoever on the Friday heading into the three-day Presidents Day weekend in the United States.

Before that, the most recent new issue news item was a negative one.

On Thursday afternoon LeasePlan Corp. NV cited adverse market conditions as it postponed its €1.55 billion three-part offering of senior secured notes (B1/BB+/BB-).

Look for that deal to resurface in March, a London-based sellside source said on Friday.

Solera, LLC is presently on the road with $2.03 billion equivalent of eight-year senior notes in tranches of euro-denominated and dollar-denominated notes.

Early on, the proposed dollar-denominated notes were discussed from the mid to high 9% range to the 10% area, sources say, but add that the talk may have been overtaken by events.

There is a significant element of reverse inquiry on the Solera deal, a trader said on Friday.

And Corus Entertainment Inc. is expected to start a roadshow on Tuesday for a C$300 million offering of seven-year senior notes (/B+/DBRS: B high), according to a buyside source.

Secondary needs to stabilize

Market sources expressed skepticism on Friday about any deal’s chances of clearing the market if conditions don’t improve.

Junk recovered a point or two on Friday but gave up a lot more than that earlier in the week, a syndicate banker said, adding that the secondary market needs to stabilize before there will be a meaningful regeneration of the new issue market.

There was a potential opportunistic deal in the $400 million to $500 million range that was expected to launch last Tuesday or Wednesday, according to a syndicate official.

However volatility sent that prospective issuer scampering.

And since it was an opportunistic deal it’s not a good bet that it will show up in the holiday-shortened week ahead, the source added.

Cash on the sidelines

Cash flows for dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, according to a portfolio manager.

High-yield ETFs saw $342 million of outflows on the day.

However actively managed funds saw $105 million of inflows.

The news follows Thursday’s weekly report from Lipper-AMG that the funds saw $1.05 billion of outflows for the week to last Wednesday’s close, sources said.

However roundabout the market the buzz holds that there is significant cash on the sidelines.

There are ongoing coupon payments and added to that is the fact that there has been no calendar. As a result investors have higher than usual cash balances, a syndicate banker said on Friday.

Investors who spoke to Prospect News on background confirmed that people are sitting on a significant amount of cash.

However there are good reasons to do so, they added.

Amid the volatility redemptions can hit and funds need to be ready for them.

However given a modicum of stability the new issue market could regenerate rapidly.

The market could open rather quickly, especially for double B rated deals, a banker said on Friday.

Whiting dominates the day

In the secondary market, traders said the dominant name of the day was easily Whiting Petroleum, whose bonds fell across its capital structure after Moody’s Investors Service slashed the Denver-based oil and natural gas company’s credit rating by multiple notches.

“WLL was very active today, after they got notched down,” one of the traders said.

“Their whole structure was very active today, and off anywhere from 2½ to 4½ points.”

He said that the busiest Whiting bond was the company’s 5% notes due 2019, quoting it off 4½ points on the session at 39¾ bid.

A second trader said that “their four issues were the most traded,” collectively racking up more than $130 million of volume.

At another desk, a trader said that the 2019 notes generated more than $41 million of transactions, pegging them down 3 5/8 points at the end of the day at 40¾ bid.

He said that the company’s 5¾% notes due 2021 ended at 39¾ bid, down 3½ points on the day, on about the same volume as the 2019s.

Whiting’s 6¼% notes due 2023 dropped by 3 points to an even 40 bid, he said, with over $25 million having changed hands.

The company’s closest maturity, the 6½% notes due 2018, fell to 27½ bid, with over $24 million traded.

Whiting’s New York Stock Exchange-traded shares meantime plunged by 41 cents, or 8.35%, closing at $4.50. Volume of nearly 40 million shares was about 2 ½ times the norm.

The bonds and shares slid after Moody’s downgraded Whiting’s corporate family rating by five notches, slashing it to Caa1 from Ba2.

Moody’s said that it expects “very weak cash flow-based leverage metrics in 2016 and particularly 2017, when its hedges roll off.”

It further warned that the company’s “heavy debt burden” would create “a heightened risk” of a debt restructuring.

One of the traders meantime said that there was “no real spillover” to other energy names.

“This seems to be credit-specific” to Whiting, he said.

Energy on the upswing

Indeed, most of the energy names aside from Whiting were seen better on the day, helped by strong crude oil prices.

The benchmark U.S. crude oil grade, West Texas Intermediate for March delivery, snapped a six-session losing streak on Friday, shooting up by $3.23 per barrel on the New York Mercantile Exchange, settling at $29.44. It was a far cry from Thursday’s $1.24 loss, which had also been its eighth downturn in the last nine sessions.

Global benchmark Brent crude for April delivery rebounded on Friday, jumping some $3.30 per barrel to end at $33.36 on the London ICE Futures Exchange, after having lost 78 cents per barrel on Thursday.

Among the energy credits taking an upside ride on Friday were EP Energy LLC’s 9 3/8% notes due 2020, which firmed to 21¼ bid, up 1½ points, on volume of over $14 million.

Concho Resources Inc.’s 5½% notes due 2023 gained 1 point to 85¼ bid, with over $12 million changing hands.

Another gainer was California Resources Corp.’s 8% notes due 2022 which were up more than 5 points at 25½ bid. Its 6% notes due 2024 gained ¾ point, with a trader seeing two-sided markets at 10¼ bid, 10¾ offered.

Chesapeake gets a bounce

Perhaps the strongest energy name of the day was Chesapeake, which got a boost on the news that the Oklahoma City-based oil and gas exploration and production company plans to take out its $500 million of 3¼% notes maturing next month.

Bloomberg News reported that the company plans to use cash and credit to make the March 15 payment, with the article citing “a person with knowledge of the matter.”

“The bonds spiked a little bit,” a trader said, pegging the issue at 92 bid, 93 offered, up 6 points, on volume of over $20 million.

Its 6½% notes due 2017 were up by a similar amount at 30, the trader said. Both the 6 5/8% notes due 2020 and the 5 3/8% notes due 2021 improved by 1½ points to 15 and 14½, respectively.

Another market source deemed the 6 5/8% notes 2 points better at 15 bid.

Its 8% notes due 2022 rose by 1¼ points, ending at 34 bid.

Chesapeake debt had been battered earlier in the week on rumors the company had hired Kirkland & Ellis LLP to look into restructuring options, including a bankruptcy filing. Though the company later issued a statement refuting any plans for bankruptcy – also noting that Kirkland has been its counsel since 2010 – investors weren’t swayed and the bonds continued to drop throughout the week.

Indexes up on day, off on week

Statistical measures of junk market performance turned higher across the board on Friday after having been lower on Thursday and mixed on both Tuesday and Wednesday.

However, they were lower versus where they had been last Friday, their second straight weekly downturn.

The KDP High Yield Daily Index gained 34 basis points on Friday to end at 61.39 after having nosedived by 55 bps on Thursday to finish at 61.05, a new low for the year and a new 52-week low, surpassing the old mark of 61.41 set back on Jan. 20. Thursday’s finish was the index’s lowest close since May 22, 2009, when it finished at 60.97. Friday’s rise was its second in the last three sessions.

Its yield came in by 12 bps, to 7.61%, after having shot up by 16 bps on Thursday. It was the index’s second narrowing in the last three sessions.

But those levels compared unfavorably with last Friday’s 62.52 index reading and 7.29% yield.

The Markit Series 25 CDX North American High Yield Index gained 11/16 point on Friday to go home at 97 1/8 bid, 97 5/32 offered, its second gain in the last four sessions. On Thursday, it lost 17/32 point.

But the index was down from last Friday’s 97 31/32 bid, 98 1/32 offered level.

The Merrill Lynch North American High Yield Master II Index improved by 0.56% on Friday, its second advance in the last three sessions. On Thursday, it had plunged by 1.119%.

Friday’s gain cut the index’s year-to-date loss to 4.61% from 5.142% on Thursday – its first cumulative loss greater than 5% this year.

Thursday’s closing loss also surpassed the year-end 2015 loss of 4.643%, which had been the biggest loss the index had seen since it lost more than 30% in 2008.

For the week, the index fell by 1.975%, its second straight weekly loss and fourth such loss in the last six weeks. Last week, it had retreated by 1.103%.

-Stephanie N. Rotondo contributed to this review

© 2015 Prospect News.
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