Morning Commentary: Sellers of high-yield bonds emerge; Gulf storm buoys energy names

By Paul A. Harris

Portland, Ore., Sept. 4 – Better sellers had the stage as fall got underway in the junk bond market, sources said.

High-yield ETFs were sellers on the morning, with $245 million of bids wanted in competition (BWICs) versus $84 million of offers wanted in competition (OWICs), a trader said.

High-yield ETF share prices were lower at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 7 cents, or 0.09%, at $85.92 per share.

The primary market remained quiet Tuesday morning as sources returned from the extended Labor Day holiday weekend in the United States.

Syndicate bankers forecast a pickup in early fall issuance, driven by a pipeline of junk deals to fund mergers and acquisitions.

Although the new issue market – in sleep mode through much of August – may not fully reactivate until the Sept. 10 week, some activity is expected to be announced in the present week, a debt capital markets banker said.

Storm propels energy bonds

With evacuations underway in some locations along the Gulf of Mexico, as low-lying coastal areas in Louisiana, Mississippi and Alabama are under threat from tropical storm Gordon, oil prices were advancing on Tuesday, a trader said.

At mid-morning the barrel price of West Texas Intermediate crude for October 2018 delivery was up 28 cents, or 0.4%, at $70.08.

The California Resources Corp. 8% senior secured second-lien notes due December 2022, which closely track oil prices, were up half a point on the day at 90¼ bid, 90¾ offered.

Late last week those bonds were 89¾ bid, 90¼ offered, the trader said.

Away from storm driven news the bonds of Southwestern Energy Co. traded higher on news that the company agreed to sell its Fayetteville Shale exploration and production and related midstream gathering assets for $1,865,000,000 in cash to Flywheel Energy, which will assume $438 million of future contract liabilities after taking into account certain obligations retained by Southwestern, a trader said.

The Southwestern Energy 7½% senior notes due April 2026 were 106 bid, 107 offered on Tuesday morning, according to the trader, who added that they traded at 105¼ last week.

The Houston-based company also announced a conditional tender offer for up to $900 million of debt, and a $200 million share repurchase, as well as allocations of up to $600 million over two years to further develop its Appalachia assets.

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