Nine Energy, EnQuest, Sunnova stuck in distressed area despite high bond prices

By Cristal Cody

Tupelo, Miss., Feb. 2 – Despite trading with handles in the high 80s and 90s so far in 2024, some junk energy names remain firmly in the distressed space on yields of nearly 20% and spreads of more than 1,000 basis points – the usual barometer, sources reported.

Nine Energy Service Inc.’s 13% senior secured notes due 2028 were hanging around a mid 80s handle in thin activity over the week.

“It’s rated triple C and yielding 18%,” a trader said. “This is still considered distressed. The spread is over 1,400 bps. Usually, the spread would be 1,000.”

BofA Securities reported that Nine Energy is on its list of junk issuers trading at or near distressed levels but are not on its current default list.

EnQuest plc also is on the list with $305 million of face debt trading at an average 95 bid.

EnQuest’s bonds were yielding around 11% to 13%, “so some of the distress is arguable,” a source said.

Among other energy names considered distressed by industry insiders is Sunnova Energy Corp., which has $400 million of debt trading at an average 89 bid with yields in the 13% to 19% area.

Sunnova Energy’s 5 7/8% notes due 2026 traded on Thursday at the 82½ to 83¾ range.

“The spread is questionable because the spread goes to 989 bps, but I would still consider it distressed,” a trader said.

A securities law firm on Tuesday announced that it is continuing to investigate potential claims against the company.

Meanwhile, the corporate default rate is expected to peak in early 2024, according to a Moody’s Investors Service report.

Moody’s 12-month trailing issuer-weighted default rate wrapped 2023 at 5.6% and is set to peak at 5.8% early this year before reverting to its historic average by June and then moderating to around 4% by the end of the year.

Nonfinancial corporate family defaults nearly tripled to 92 in 2023 from 31 in 2022, the highest annual default tally since 2020, Moody’s said.

Fitch Ratings said in a report on Friday that the default rate for large middle-market issuers in its leveraged loan universe hit 5½% in 2023, the highest rate going back to at least 2007.

Stocks jumped over the session following a positive U.S. jobs report, while Treasury yields turned higher after sinking in the prior two sessions.

The S&P 500 index closed up 1.07%.

The iShares iBoxx High Yield Corporate Bond ETF fell 35 cents, or 0.45%, to $77.19.

The benchmark 10-year note yield ended the day 17 bps higher at 4.03%.

The Labor Department reported on Friday that total nonfarm payroll employment rose by a seasonally adjusted 353,000 in January, up from 333,000 in December and much higher than the 185,000 increase economists expected.

The unemployment rate was unchanged for a third consecutive month at a seasonally adjusted 3.7%.

Job gains in January were seen in professional and business services, health care, retail trade and social assistance, while employment declined in mining, quarrying and the oil and gas extraction industry.

West Texas Intermediate crude oil benchmark futures for March delivery settled Friday $1.54 lower at $72.34 a barrel.

Nine Energy mostly quiet

Nine Energy’s 13% senior secured notes due 2028 (Caa2/CCC+) were moving about 1 point higher at 87 bid on Friday in odd lots, a source said.

The bonds were quiet on Thursday and last seen active in light supply on Wednesday at 86 bid and an 18% yield, up from hanging around 86¼ bid on Monday in thin activity.

Nine Energy sold $300 million of the 13% notes on Jan. 19, 2023 at 95. The notes were packaged into 300,000 units, each comprised of a $1,000 par amount of notes with attached penny warrants for five shares of the company’s common stock.

Nine Energy has $300 million of face debt trading at an average 88 bid, BofA said.

The company redeemed all of its outstanding 8¾% senior notes due 2023 partially using funds from the 2028 bond offering.

Back in 2022, the 8¾% notes were trading with handles in the 50s and low 60s area.

Shares (NYSE: NINE) in the Houston-based provider of oilfield services declined over 8% on Friday to $2.25.

EnQuest quiet

EnQuest’s 11 5/8% senior notes due 2027 (/B+) were quiet on Friday with thin trading seen in January, market sources said.

The bonds were quoted on Thursday at 95 bid, a spread of 906 bps and a 13% yield.

In June 2023, the London-based independent petroleum exploration and production company told shareholders it planned to engage with sterling fixed income investors regarding a tap issue and exchange offer related to its retail bonds, pending market conditions. In August, EnQuest agreed to a term loan facility of up to $150 million that matures in July 2027.

Sunnova Energy mixed

Sunnova Energy’s 5 7/8% senior notes due 2026 (B1) were mostly quiet on Friday with an 82 bid handle, a source said.

The bonds traded on Thursday at the 82½ to 83¾ range with a yield of about 14%.

Sunnova Energy’s 2 5/8% convertible senior notes due 2028 were more active over the session and up about ½ point on a 50 bid handle with a yield of 21¾% on $7 million of volume.

The company’s bonds were pressured in 2023 after Sunnova reported a large quarterly revenue miss in July but still sported a low 90s handle.

In December, Sunnova Energy came under focus from Congressional Republican leaders over the Department of Energy’s financial support to the company and from consumer complaints.

Securities law firm Faruqi & Faruqi, LLP announced on Tuesday that it is continuing to investigate potential claims against Sunnova Energy after congressional Republicans on Dec. 8 disclosed that a letter had been sent to the Department of Energy Loan Programs Office questioning a $3 billion partial loan guarantee to the company.

Houston-based residential solar energy company Sunnova International’s stock (NYSE: NOVA) was down 8.33% at $9.90 on Friday.

Distressed index volatile

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns have been volatile over the week but improved on Thursday to 0.14%.

One-day total returns were minus 0.14% on Wednesday, 0.32% on Tuesday and negative 0.94% on Monday.

Quarter- and year-to-date total return losses rose to minus 2.01% versus negative 2.15% on Wednesday, minus 2.20% on Tuesday and negative 2.33% on Monday.

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