Distressed bonds quiet; oil price slide has limited impact on energy names; private prison rebound continues

By Paul Deckelman

New York, Aug. 22 – Traders in distressed bonds reported a quiet session on Monday, in line with the generally calm conditions besetting the broader high yield market, undergoing its traditional mid-summer lull in activity.

Traders said that a sharp drop in oil prices on Monday failed to have much impact on the bonds of energy companies such as California Resources Corp. and Chesapeake Energy Corp.

Limited volume seemed to be the watchword of the overall market – even for the bonds of private prison operators Corrections Corp. of America and GEO Group, Inc.

They continued to rise on Monday, extending a rebound which had begun on Friday following Thursday’s dramatic swoon on the news that the U.S. Justice Department will begin phasing out the use of privately run corrections facilities such as those run by the two companies.

Oil names steady despite slide

A trader said that he had thought that “with oil softer, you might see a little bit of a selloff in some names – but it just hasn’t really happened.”

The benchmark U.S. crude grade, West Texas Intermediate for September delivery, fell by $1.47 per barrel in New York Mercantile Exchange trading Monday, to $47.05, its first loss after seven straight gains, while the key international grade, Brent crude for October delivery, plummeted by $1.72 per barrel to settle at $49.16 on the London ICE Futures Market.

Despite that slide, a second trader said, Oklahoma City-based oil and gas operator Chesapeake Energy’s 6 5/8% notes due 2020 were finishing around 85¼ bid with about $3 million traded, “down just a little bit, maybe ½ point – but that’s not exactly a whole big [thing] – it was like one trade, so it’s not an indication of what’s going on.”

He saw Chessie’s 8% notes due 2022 at 92¼ bid, 92½ offered, “pretty much unchanged, on a couple of million bonds traded, maybe $3 [million] ”

Noting the paltry activity in such a large, liquid ($2.4 billion) and normally actively traded issue,” he commented that “the dog days are here.”

The trader saw Los Angeles-based California Resources’6% notes due 2024 at 49 bid and its 8% notes due 2022 at 68 bid, calling both issues about unchanged, and noting that there was only about $1 million or so traded, well below the usual activity level.

While noting the slide in oil prices, the first trader said that there was no resulting selloff in the sector because “the audience is on the thin side and there’s a lot of cash around, so there’s no need to sell anything. They may not be buying – but there’s no need to sell, really.”

Private prison rebound continues

One area which did see some bond price movement – though not on a lot of volume – was in the private corrections space, which had gotten slammed last Thursday after the U.S. Justice Department announced that the Federal Bureau of Prisons would begin phasing out its use of privately owned and operated corrections facilities of Corrections Corp. of America and GEO Group, Inc.

After that dramatic drop, the bonds had begun rebounding on Friday, firming smartly off their lows, and were seen mostly continuing to rebound on Monday.

A trader saw Nashville-based CCA’s 4 5/8% notes due 2023 at 94¼ to 94½ bid “pretty much where they were on Friday.”

He said that “on Thursday, they got clocked – things dropped down into the 80s and now it seems like the bonds are up a little bit [from their lows], but still down from their [earlier] premium – they were like 101 at the beginning of last week.”

“He said about $7 million changed hands on Monday.”

He also saw the company’s 4 1/8% notes due 2020 in a 97 to 98½ bid context, which he called actually down a point from Friday’s level, on about $5 million of volume.

Those notes had been trading just shy of 104 bid at the beginning of last week, but then plummeted to 94 bid on the Thursday announcement, before coming back to around 98 7/8 bid on Friday.

Another trader said the Corrections Corp. bonds, and those of Boca Raton, Fla.-based sector peer GEO Corp. “kind of snapped back a little bit today after that DOJ announcement last week, when the bonds started cratering.”

He saw GEO’s 6% notes due 2026 trading up 3 points on Monday to 92¼, bid and the 5 7/8% notes due 2022 up 1 point to 96, although both saw “only a handful of trades.”

Both of the GEO issues remained well below the 103ish level at which they had traded on Wednesday, before the government announcement.

© 2015 Prospect News.
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