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Morning Commentary: Junk holds in as stock prices slip; Halcon Resources unsecured bonds tumble
By Paul A. Harris
Portland, Ore., Aug. 28 – High-yield bonds were unchanged heading into the Friday midday against a backdrop of softer equity prices, according to a trader in New York.
The iShares iBoxx $ High Yield Corporate Bd (HYG) was 13 cents higher at $86.41 per share.
The SPDR Barclays High Yield Bond ETF (JNK) was selling at $36.98 per share, up a penny.
High yield ETFs were massive buyers on Thursday, the trader said.
Halcon Resources slips
The unsecured paper of Halcon Resources Corp. took a nosedive on Friday after the company announced it would issue $1.02 billion of new 13% third-lien senior secured notes due 2022 in exchange for $1.57 billion of its outstanding debt securities, including the 9¾% senior notes due 2020, the 8 7/8% senior notes due 2021 and the 9¼% senior notes due 2022.
The bonds were basically unchanged when the announcement came, according to a New York-based trader.
But 9¾% notes and the 8 7/8% notes subsequently traded sharply lower and were down 10 point to 15 points heading into the East Coast midday, at which time the Halcon Resources 8 7/8% notes due 2021 were trading in a range of 33 to 35 and the 9¾% notes due 2022 were trading in a range of 33 to 34, the trader said.
By executing the exchange the company expects to achieve significant deleveraging, to 4.1-times leverage from 4.9-times leverage, and also expects the shave $12 million per year off its interest expense, the trader said.
A tailwind for energy
The back end of the week saw dramatic improvement in crude oil prices, and the good news was continuing into Friday.
The barrel price of West Texas Intermediate crude was $43.79 heading into midday, up $1.23 per barrel on the day.
The California Resources Corp. 6% notes due November 2024, which has been closely correlated to the price of crude oil, was unchanged on Friday but saw 3 to 4 points of price improvement on Thursday, a trader said.
The California Resources 6% notes were 73½ bid, 74 offered heading into the Friday midday. They were 70 bid on Wednesday, the trader added.
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