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Morning Commentary: SRC Energy bond jumps on acquisition; junk holds in; liquidity thins
By Paul A. Harris
Portland, Ore., Aug. 26 – High-yield bonds were firm, perhaps up 1/8 of a point, on a sleepy late August Monday, as market liquidity appeared to be diminishing, a New York-based bond trader said.
With the U.S. stock indexes well into the green at mid-morning, high-yield ETFs were posting gains. The iShares iBoxx $ High Yield Corporate Bd (NYSE: HYG) share price was up 0.24%, or 21 cents, at $86.76 per share.
News that PDC Energy Inc. plans to acquire smaller oil and gas producer SRC Energy Inc. in an all-stock deal valued at $971.3 million sent the price of SRC Energy's 6¼% senior notes due December 2025 up 5 points on Monday, said the trader, who spotted them 97 bid, 97¼ offered.
Ahead of the deal announcement that bond was 92 bid, the trader said.
The PDC-SRC combination is expected to provide financial flexibility and sustainable free cash flow to return significant capital to PDC shareholders and capitalize on additional growth opportunities, according to Bart Brookman, president and chief executive officer of Denver-based PDC.
The final week of August got off to a decent start in the oil patch.
The barrel price of West Texas Intermediate crude oil for October 2019 delivery was up 1.03%, or 56 cents, at $54.73.
The California Resources Corp. 8% senior secured second-lien notes due December 2022, a big liquid issue employed by high-yield bond investors for the purpose of tracking crude oil prices, were unchanged on the morning at 58¼ bid, the trader said.
The new issue market remained dormant on Monday and is expected to pass the rest of the pre-Labor Day interval the same way, as numerous market participants use the traditionally quiet Dog Days of late August to take mandatory two-week vacations, sources say.
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