Distressed market quiet during shortened session; energy bonds mixed; convertibles find bids

By Paul Deckelman and Rebecca Melvin

New York, Dec. 24 – It was a quiet session in the distressed-debt market on Thursday, with not much real activity seen during an abbreviated session ahead of Friday’s scheduled full market close.

Junk bond traders said that energy names, which had been mostly better over the last two sessions in line with a sharp rise in previously beleaguered world crude oil prices, were seen mixed on Thursday even as crude continued to gain. Traders cautioned, however, that with few large-sized trades taking place, any moves were probably not really representative.

Gainers from the sector included Chesapeake Energy Corp., SandRidge Energy, Inc. and Newfield Exploration Co.

Downsiders included Oasis Petroleum Inc. and Transocean Ltd. as well as California Resources Corp.

In the convertibles market, traders saw some illiquid energy names bid for in thin trading, including Chesapeake, Hornbeck Offshore Services Inc. and Whiting Petroleum Corp.

Away from the energy sphere, AK Steel Holding Corp.’s bonds rose for a second straight session, aided by news of U.S. tariffs slapped on steel products coming from rival China.

Quiet, shortened session

Traders said that Thursday’s session was largely a non-event.

The Securities Industry and Financial Markets Association had formally recommended a 2 p.m. ET early close ahead of Friday’s full Christmas Day market shutdown, but the reality was that, as one trader put it, “for all intents and purposes, today’s market was over yesterday.”

If shops were manned at all, numerous market participants made for an early exit hours before the official abbreviated closing time.

The result, another trader said, was “it was pretty quiet, nothing standing out.”

Another market source called the pace “very slow, not much happening.”

Energy names mixed

Crude oil prices were better across the board for a second consecutive session, with the domestic benchmark grade, West Texas Intermediate, seen up for a fourth session in a row.

February-contract WTI crude gained 60 cents, or 1.60%, in trading on the New York Mercantile Exchange, going home at $38.10. WTI was up 9.7% this week, its biggest weekly gain since August, helped in no small part by statistics showing a sharper-than-expected decline of nearly 6 million barrels in U.S. crude stockpiles.

It was also helped by congressional approval of a measure allowing U.S. crude to be exported for the first time in 40 years, lifting a ban imposed in the wake of 1970s-era oil and gasoline shortages in the United States.

The international Brent benchmark for February was up for a second straight session, gaining 53 cents, or 1.4%, to settle at $37.89 a barrel on the London ICE Futures Exchange.

Energy company junk bonds were mixed on Thursday, but in very light trading, a market source cautioned.

Gainers included Chesapeake Energy, whose 6 5/8% notes due 2020 were seen up more than 2 points at 29½ bid.

SandRidge’s 7½% notes due 2021 were quoted at 11 bid, up 1¼ point, while higher-quality producer Newfield’s 5¾% notes due 2022 were seen ½ point better at just under 89 bid.

On the downside, Oasis Petroleum’s 6 7/8% notes due 2022 were off by ¼ point at 63½ bid, though its volume of over $6 million made it the busiest high-yield issue on the day.

The company’s 6½% notes due 2021 were little changed on the day at 64¼ bid, with over $2 million traded – but they were up more than 2 points from levels seen earlier in the week in round-lot trading.

International offshore drilling contractor Transocean’s 7 1/8% notes due 2021 retreated by 7/8 point, ending the day at 66 3/8 bid, with around $3 million traded.

California Resources’ 8% notes due 2022 were off by ¼ point at 52 bid.

Energy converts seen bid for

In the convertibles market, traders reported that several illiquid issues of energy operators seemed to have found a bid. Those energy convertibles have been butchered in the past month-and-a-half, along with their underlying shares, as oversupply fears further depressed oil and other energy prices.

One such illiquid energy name that saw a bid on Thursday was Hornbeck Offshore Services, whose 1.5% convertibles due 2019 were bid at 53, which was “probably very low,” a trader said.

The underlying shares of the Covington, La.-based provider of offshore supply vessels started off higher but pared early gains to end down 33 cents, or 3.1%, at $10.29 on the day.

The Hornbeck paper had been 52 bid, 56 offered on Monday, he said, adding that generally energy convertibles were a little stronger, following stocks upward.

Whiting Petroleum’s 1.75% convertibles traded at 71 on Thursday against shares of the Denver-based oil and gas exploration and production company that closed down 57 cents, or 5.4%, at $10.08. Those shares moved in the opposite direction of a $1.65, or 18%, surge to $10.65 on Wednesday.

The Whiting convertibles had been indicated up at 69.69 from 66.27 on Wednesday, according to market sources, and had been quoted down to 66.25 versus an underlying share price of $9.09 on Monday, when shares had fallen another 9% to an $8.31 close.

Whiting’s convertibles have been very weak as the energy market continues to reel under the oversupply problem, a trader said, and Monday’s action, when the bonds slipped on swap another 1 point to 1.5 point, represented a continuation of an ongoing trend. That was only marginally lower compared to a 7-point swap loss last week and a 13- or 14-point lost in the prior two weeks, the trader said.

Chesapeake Energy was also seeing a bid on Thursday, particularly in its convertible preferreds, a trader said.

The newer Chesapeake 6.75% perpetual convertible preferreds, which priced in August, were seen up at $375.50 from $360.45 previously.

A Chesapeake 5.75% convertible preferred was seen at 176 compared to 169, and a second 5.75% Chesapeake convertible preferred was up to 170 from 163.6, according to a market source.

The Oklahoma City-based oil and natural gas exploration and production operator’s common shares were up another 5 cents, or 1%, to $4.45 as natural gas prices edged higher again.

Meanwhile U.S. natural gas futures for January delivery were $2.04 per MMBTU on Thursday afternoon, which was up from $1.984 per MMBTU on Wednesday and up from $1.70 per MMBTU last Friday, when the January contract traded at multi-year lows.

Other energy convertible mandatory issues had also been trading better, including those of Kinder Morgan Inc., Southwestern Energy Co. and WPX Energy Inc., according to a New York-based trader.

“Volume has been light, but there are certainly better buyers of all the beaten-up mandatories,” the trader said.

Looking ahead, the trader didn’t think that the trend would continue into next week, when markets will have another holiday-shortened trading week for the New Year’s Day holiday.

“It’s been a very long six weeks, and I think it will be very, very quiet next week,” he said.

AK improves again

Away from the energy sector, for a second consecutive session, AK Steel’s 7 5/8% junk bonds due 2020 were seen on the upside on Thursday.

A trader quoted them at 43¼ bid, up 1 point on the session.

That added to the gains in the West Chester, Ohio-based integrated steel manufacturer seen on Wednesday on the news that the U.S. Commerce Department will impose a 256% tariff on imports of non-corroding steel products from China.

Those imports, and imports from other lower-cost foreign producers, have eroded AK’s sales of one of its key steel alloy products.

On the news Wednesday, more than $7 million of the notes traded, making it one of the more active issues in an otherwise quiet session. The bonds jumped to around 42 bid – up a point on a round-lot basis and up almost 3 points from Tuesday’s close.

In making its announcement, the federal agency said the Chinese were selling their steel product at unfairly low levels, necessitating the tariff.

The agency also slapped smaller tariffs on similar steel products from India, South Korea and Italy.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.