Morning Commentary: High yield opens half-point higher; oil and gas weakness pressures energy bonds

By Paul A. Harris

Portland, Ore., Sept. 30 – High yield was showing some strength at the open of the final session of September, with cash bonds up half a point, according to a sellside source.

Bonds in the energy sector are lower in the last half of September due to weakness in oil and gas prices, the source said, noting that crude oil prices have fallen $10 per barrel since mid-July.

Concho Resources Inc.’s bonds are down half a point to a point, which the source attributed to the overall weakness of the sector.

Bonds of SandRidge Energy Inc. have been hit rather hard, with the long-dated bonds down a point and shorter-dated paper down one-quarter point, the source added.

American Energy – Woodford, LLC’s 9% senior notes due Sept. 15, 2022 (Caa1/CCC/) were 92½ bid on Tuesday morning, down 2 points since last Thursday.

The $350 million issue priced at 95.901 to yield 9¾% on Sept. 11. That deal, upsized from $325 million, saw pricing blow out 62.5 basis points beyond the wide end of yield talk that had been set in the 9% area.

A glut of energy paper hitting the new issue market since the beginning of September has likely also been pressuring bonds in that sector, the sellsider said.

The price slides in energy bonds, taken in conjunction with the overall weakness in the high-yield market since July, prompted at least one opportunistic issuer to back away from the new issue market in recent days, the source said.

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