Junk sees improved market tone, helped by better stocks, oil prices; Valeant up; Denbury down

By Paul Deckelman and Paul A. Harris

New York, Dec. 22 – The high-yield market saw an improved tone on Tuesday, traders said.

They said market sentiment was helped by strength in equities and an upturn in domestic crude oil prices.

The stronger oil prices helped energy names such as EP Energy Corp., Transocean Ltd., PetroQuest Energy, Inc., Whiting Petroleum Corp. and energy and mining concern Teck Resources Ltd.

However, not everyone went along for the upside ride; energy downsiders included California Resources Corp. and Denbury Resources Inc., the latter credit down as the energy and production operator announced a discount-priced exchange offer for several series of its existing bonds.

Away from the energy names, Valeant Pharmaceuticals International, Inc.’s notes were better in busy trading.

The primary market remained in its late-year snooze mode as far as deals actively circulating or having priced, although syndicate sources did hear that Western Refining Inc. will either use bank loans or capital markets debt to help fund a pending acquisition.

Statistical measures of junk market performance turned higher across the board on Tuesday after having been mixed on Monday.

Western Refining eyes offering

The Tuesday primary market produced no news, as expected.

Syndicate desks and trading desks remain thinly staffed ahead of Christmas, a syndicate banker said.

There was, however, news of some 2016 supply.

Western Refining Inc. said it plans on using bank or capital markets debt to help fund its acquisition of all of the outstanding common units of Northern Tier Energy LP that it does not already own.

The company expects to have $380 million of acquisition debt in its pro forma capital structure.

The company is expected to show up in January, a trader said.

Goldman Sachs acted as financial adviser to Western Refining.

Market quiet but better tone

A trader said that Tuesday’s junk bond market was “very quiet. Things had a better tone, with equities up and, more importantly, with oil up over $36 [per barrel].”

The bellwether Dow Jones industrial average moved up by 165.65 points, or 0.96%, to end at 17,417.27, while other, broader indexes, posted similar gains.

The benchmark U.S. crude grade, West Texas Intermediate for February delivery, was up by 33 cents at $36.14 per barrel on the New York Mercantile Exchange; Tuesday’s session was the first in which February became the front month.

While WTI was going up, its path crossed that of international oil benchmark Brent crude for February delivery, which fell for a fifth straight session, losing 24 cents to settle at $36.11 a barrel on the London ICE Futures Exchange, its lowest level in 11 years.

The trader said that the CDX index was up by ½ point on Tuesday, “though I think that might be a little exaggerated, with the very light flows.”

Most energy names gain

Among specific credits, a market source said that EP Energy’s 9 3/8% notes due 2020 gained 2½ points on Tuesday, ending at 60¼ bid, on busy volume of more than $11 million traded.

Other energy gainers on Tuesday included offshore drilling contractor Transocean’s 6.8% long bonds due 2038, which gained 3½ points on the day to end at 52½ bid; PetroQuest’s 8¾% notes due 2018, which firmed more than 2 7/8 points to end just above 96 bid; Whiting Petroleum’s 5% notes due 2019, up 2¾ points at 74½ bid; and Teck Resources’ 4½% notes due 2021, which ended at 50½ bid, up 2½ points.

Some energy names off

However, California Resources’ 8% notes due 2022 were down ½ point, ending at 51½ bid, on volume of over $21 million.

The big loser was Denbury Resources, whose 5½% notes due 2022 nosedived nearly 5 points, ending at 32 bid, with $10 million traded.

It announced late Monday that it would privately exchange its 6 3/8% notes due 2021, 5½% notes due 2022 and 4 5/8% notes due 2023 for up to $650 million of new 7½% notes due 2022.

For each $1,000 of notes validly tendered, holders will receive $600 in new notes. Those who participate by the early deadline, 5 p.m. ET on Jan. 7, will receive an additional $50 of new notes.

Additionally, the Plano, Texas-based oil and gas producer will pay any accrued interest on the notes in cash.

The new notes will rank senior to any remaining outstanding bonds.

The offer expires at 11:59 p.m. ET on Jan. 20.

Valeant firms up

Away from energy, Canadian drug maker Valeant Pharmaceuticals’ 6 1/8% notes due 2025 rose ¾ point to 90½ bid, with volume of over $23 million, topping the Most Actives list.

Indicators turn better

Statistical measures of junk market performance turned higher across the board on Tuesday after having been mixed on Monday and lower all around on Thursday and again on Friday. Including the two straight higher sessions before that, Tuesday was the third higher session in the last six trading days.

The KDP High Yield Daily index gained 24 basis points to end at 63.21, its first gain after 3 straight losses. On Monday, it had dropped by 19 bps.

Its yield came in by 12 bps to close at 7.52%, its first narrowing after three straight widenings, including Monday’s 8 bps rise.

The Markit Series 25 CDX North American High Yield index gained 21/32 point to end at 100 3/32 bid, 100 5/32 offered, its second straight gain after two losses. On Monday, it firmed by 1/32 point.

The Merrill Lynch North American Master II High Yield index rose 0.201%, its first gain after three losses that included Monday’s 0.043% decline.

That cut its year-to-date loss to 5.454% from 5.691% Monday.

Sara Rosenberg contributed to this review

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