Energy credits continue rebound despite lower oil; Caesars up on affiliate merger plan; primary silent

By Paul Deckelman and Paul A. Harris

New York, Dec. 22 – The high-yield market entered the penultimate week of 2014 on Monday with little or no activity seen in the new-deal arena – and likely none expected for the remainder of this year.

In the secondary realm, traders said that although liquidity was constrained, there was some activity in energy-related credits, which for the most part continued to climb, even though oil prices retreated anew after Saudi Arabia’s oil minister ruled out any output cuts to prop up prices.

Among the gainers were names such as Oasis Petroleum Inc., California Resources Corp., Goodrich Petroleum Co., Range Resources Corp. and Antero Resources Corp.

Another energy credit taking an upside ride even though its shares were sliding was Exco Resources Inc.

Away from the energy space, Caesars Entertainment Corp.’s bonds – and those of its Caesars Acquisition Co. affiliate – firmed solidly on the news that the Las Vegas-based gaming giant and the affiliate plan to merge as part of the parent’s efforts to restructure the huge debt load of its Caesars Entertainment Operating Co. Inc. unit.

Statistical market performance indicators were mixed on Monday after having been higher across the board over the previous three sessions.

Amid extremely thin liquidity in the junk bond market, the primary market did not generate any news on Wednesday, sources said.

As of the Monday close, just two market sessions are left to play out prior to Christmas Eve.

Liquidity is expected to remain extremely thin during the run-up to 2015, a trader said.

Energy names rally again

In the secondary market, prices were seen generally better on Monday, continuing the big rally that started around the middle of last week and has continued since then.

This occurred even though the solidly higher oil prices seen at the end of last week underpinning that upturn faded on Monday. The January contract for the benchmark West Texas Intermediate crude oil grade fell as low as $2 a barrel early in the session, before coming off that low but still ending down $1.87, or 3.3%, at $55.26 a barrel.

It thus gave up most of the $2.42 it had gained on Friday.

Prices slid anew as Saudi Arabia’s oil minister, Ali al-Naimi, said over the weekend that it was “not in the interest of OPEC producers to cut their production, whatever the price is.” He held out the possibility that the kingdom might actually increase its production at current price levels to gain market share at the expense of weaker producers.

But the oil and gas-sector exploration and production-company bonds appeared to shrug off those comments and their impact on the energy futures market.

One of the most actively traded issues of the session was Exco Resources 7½% notes due 2018. More than $13 million of those bonds traded, pushing up to around 77 11/16 bid, versus last week’s levels around 70 bid.

However, the Dallas-based energy company’s New York Stock Exchange-traded shares swooned by 30 cents, or 11.45%, to close at $2.32, on volume of 3.2 million shares, around two-thirds of the norm.

There was no fresh news immediately seen out on Monday about the company, which last week announced that it was suspending its dividend in order to conserve cash in a low-oil-price environment.

Also in that sector, a trader saw Houston-based Oasis Petroleum’s 7¼% notes due 2019 were up 2½ points to end at 94 7/8 bid, on volume of between $6 million and $7 million.

He also saw Houston-based Goodrich Petroleum’s 8 7/8% notes due 2019 gain 2½ points to finish at 50½ bid, with over $5 million traded.

Fort Worth. Texas-based Range Resources’ 5% notes due 2023 gained 1 point to end at 101 bid, on volume of over $8 million.

Away from the Lone Star State-based producers, Los Angeles-based California Resources’ 5% notes due 2020 were seen up 1¼ points, at 89¼ bid, with over $13 million changing hands.

And Denver-based Antero Resources 5 1/8% notes due 2022 rose by 1¾ points to end at 94¼ bid, on busy volume of over $19 million.

Caesars bonds up

Outside of the energy space, a trader said that one of the active names on what was a pretty light-volume day was Caesars Entertainment, whose bonds rose on the news that it will merge with its Caesars Acquisition Co. affiliate – a transaction aimed at giving parent Entertainment access to Acquisition’s estimated $1.7 billion of cash, which Entertainment would then use as part of the financing for its planned restructuring of its Caesars Entertainment Operating Co.’s $18 billion of debt, which was announced last week.

Another trader quoted Caesars Entertainment Operating’s 10% notes due 2018 as having been pretty much unchanged on the day around 16¾ bid, on volume of over $15 million.

He saw the 9% secured notes due 2020 as the big winner on the day, rising 5 points to end at 77½ bid, on volume of more than $12 million, while its 11¼% notes due 2017 gained 3 points to finish at 78 bid, on $10 million of turnover.

As for the rest of the company’s capital structure, “nothing traded in any significant amount.”

Caesars Acquisition’s 9 3/8% second-priority senior secured notes due 2020, issued via Caesars Growth Properties Holdings LLC, jumped 5 5/16 points on Monday to 88 1/8 bid, on volume of over $7 million.

Indicators turn mixed

Statistical indicators of junk market performance turned mixed on Monday, after having been higher across the board over the three previous sessions.

The KDP High Yield Daily index rose for a fourth consecutive session, gaining 7 basis points to end at 70.61 after having advanced by 20 bps on Friday. At one point earlier last week, the index had fallen to its lowest level since October of 2011.

The yield came in on Monday by 33 bps to 5.65%, its fourth straight narrowing. It had declined by 4 bps on Friday following another 33 bps tightening on Thursday.

But the Markit CDX North American High Yield Series 23 index lost 3/16 of a point on Monday to close at a 106 3/8 bid, 106½ offered. On Friday, it had gained 5/16 point, which had been its third consecutive improvement.

However, the Merrill Lynch U.S. High Yield Master II index put up its fourth successive advance on Monday, gaining 0.268%, on top of Friday’s 0.314% rise.

That lifted the index’s year-to-date return to 2.184% from Friday’s 1.911%. Earlier last week, the index’s cumulative return had briefly dipped into the red for the first time since October of 2011.

Despite the strong rebound later in the week and continuing into Monday, the year-to-date return remained well below its peak level for the year of 5.847%, recorded on Sept. 1.

According to the Finra/Bloomberg high-yield bond index, junk bond volume fell to $2.025 billion on Monday, down from $3.191 billion at the close on Friday.

© 2015 Prospect News.
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