Energy credits continue downturn despite oil price gains; primary quiet; funds lose $2.1 billion

By Paul Deckelman and Paul A. Harris

New York, Jan. 14 – It was more of the same old, same old for high-yield energy issues on Thursday, as bonds in the oil and natural gas sector continued to get pummeled by investors.

Not even an upturn in world crude oil prices – the first real gains posted in the past nine sessions – could change the mind of the bond bears, who continued to take sector names lower on apparent fears that the crude price revival is a case of too little, too late.

For a second straight session, bonds of Oasis Petroleum Inc. and EP Energy Corp. were seen by market sources to be getting clobbered.

So were other oil and gas sector peers such as Whiting Petroleum Corp., WPX Energy, Inc. and Chesapeake Energy Corp.

However, unlike Wednesday’s session – which saw junk paper broadly weaker, even outside the beleaguered energy space – on Thursday many of those non-energy credits seemed to be doing well, including hospital operators Community Health Systems, Inc., HCA Inc. and Tenet Healthcare Corp., as well as phone firm Frontier Communications Corp.

But Fiat Chrysler Automobiles NV’s paper skidded lower on news of a lawsuit against the car manufacturer by one of its dealers, alleging fishy reporting.

The high-yield primary arena remained quiet, with no new deals announced and none pricing.

Statistical measures of junk market performance turned mixed on Thursday after having been lower across the board on Wednesday; it was their fourth mixed session in the last five trading days, with the indicators having turned mixed on Friday and staying that way on Monday and Tuesday, before Wednesday’s downturn.

Another statistical market performance indicator – flows of investor money into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – posted its second consecutive net outflow this week and its fifth downturn in the last six weeks. Some $2.107 billion more left those weekly-reporting-only domestic funds during the reporting week ended Wednesday in the form of investor redemptions than had come into them during that time, on top of the $809.1 million outflow the funds saw last week.

Primary stays quiet

The high-yield primary market did not generate any news on Thursday.

One deal is presently on the road.

GCP Applied Technologies Inc., which is to be spun off from W. R. Grace & Co., was scheduled to meet with investors in New York on Thursday, the second day of its full roadshow.

The deal, via left bookrunner Goldman Sachs, is set to price during the holiday foreshortened week ahead.

The Columbia, Md.-based provider of specialty construction chemicals, building materials and packaging technologies plans to use the proceeds to fund a $500 million distribution to W. R. Grace & Co.–Conn., a direct subsidiary of W.R. Grace, and for general corporate purposes.

Energy under pressure, again

A trader said that “we saw some big moves in the E&P space yesterday [Wednesday] – and we saw some big moves today.”

As had been the case on Wednesday, one of the biggest losers on the session was Houston-based exploration and production operator Oasis Petroleum, whose bonds, he said, were down by as much as 7 points on the session, comparable to their Wednesday losses.

A market source at another desk meantime saw Oasis’ 6½% notes due 2021 – which had been down by as much as 9 or 10 points on Wednesday to finish in the high 40s – lose another nearly 4 points on Thursday to go home at 44 bid, with over $13 million having changed hands.

Its 7¼% notes due 2019 – 10-point losers on Wednesday – were hammered down by another 7 points on Thursday to 53¼ bid.

One of the traders saw Tulsa, Okla.-based oiler WPX Energy being pushed lower.

“There are three bonds in the [capital] structure – and they were down around 8 points,” he said.

The company’s most active issue was its 8¼% notes due 2023, which in fact were 8 points lower at 66½ bid, with over $13 million having traded.

At another desk, the bond were quoted as low as 65¾, down about 8¾ points on the day.

Houston-based EP Energy’s 6 3/8% notes due 2023 were down 4 points, dropping to 38 bid, while its 9 3/8% notes due 2020, which had fallen by more than 7 points on Wednesday, lost an additional 2¾ points on Thursday, closing at 41¾ bid, on volume of over $11 million.

Among other energy industry losers on Thursday, Chesapeake’s 8% notes due 2022 finished off by ¾ point at 46¼ bid, with over $14 million having changed hands.

Halcon Resources Corp.’s 8 5/8% notes due 2020 were down a deuce on the day at just over 60½ bid, with over $13 million traded.

“Even Whiting Petroleum” – which had not been among the day’s big losers on Wednesday, was in that category on Thursday, one of the traders said, finishing down 5½ to 6 points. Its 6¼% notes due 2023 retreated by 5 points to 65 bid, with over $10 million traded.

The Denver based E&P operator’s 5% notes due 2019 did even worse than that, backsliding by 7½ points to 66.

“So all of these E&P names were significantly down,” the trader said,” across the board today.

“We saw it happen in the afternoon yesterday in some, and we saw more names today.”

He said that the sector fell despite the upturn seen in crude oil prices.

The February contract for the benchmark U.S. domestic crude grade, West Texas Intermediate, and for the main international crude grade, Brent crude, each finished up 72 cents per barrel on the day, ending at $31.20 for WTI and at $31.03 for Brent.

It was the latter crude oil grade’s first gain after eight straight losses and just its second gain in the last 190 trading days, while WTI notched its second straight gain after seven consecutive losses; on Wednesday, it had edged up by 4 cents on the day.

“There seems to be a bigger agenda with these crude names” in ignoring the oil upturn, the trader said.

One theory making the rounds was that investors do not believe the upturn in oil prices is sustainable, or even meaningful.

“It was only 72 cents,” the trader said, in downplaying the significance of Thursday’s small gain

Non-oil names better

Unlike the broad market downturn seen on Wednesday, which was led by the energy names but which also included many non-energy names, the latter generally managed to avoid following the oil names down on Thursday.

Among the more active gainers on the session were the trio of hospital operators.

Community Health Systems’ 6 7/8% notes due 2022 were up by more than 1 point at 87 25/32 bid, with over $31 million traded.

HCA’s 5 3/8% notes due 2025 rose by ¾ point to 99¾ bid, on volume of over $16 million.

Tenet Healthcare’s 6¾% notes due 2023 were also up ¾ point, at 90½ bid, with over $18 million of turnover.

Away from the healthcare credits, Frontier Communication’s 11% notes due 2025 gained 3/8 point to 94 5/8 bid, with over 429 million traded.

Fiat Chrysler in a ditch

One non-energy name which saw itself in trouble nonetheless was Fiat Chrysler’s 5¼% notes due 2023, which fell 2¾ points to 93¼ bid, with over $14 million traded.

The carmaker’s bond skidded on news that one of its U.S. dealers is suing the company, alleging it offered financial incentives to falsely report vehicle sales by reporting retail unit sales in one month and reversing them in the following month.

Fiat Chrysler denies the allegations and vows to vigorously contest the lawsuit.

Indicators turn mixed

Statistical measures of junk market performance turned mixed on Thursday after having been lower across the board on Wednesday; it was their fourth mixed session in the last five trading days, with the indicators having turned mixed on Friday and staying that way on Monday and Tuesday, before Wednesday’s downturn.

The KDP High Yield Daily Index nosedived by 38 basis points on Thursday to end at 62.94, its fourth straight loss, and its fifth downturn in the last six sessions. The index had swooned by 23 bps on Wednesday, on top of losses on both Monday and Tuesday.

Thursday’s 62.94 close established a new low for the year and a new 52-week low, eclipsing the old mark of 62.95, which had been set on Dec. 14. It was the lowest reading for the index since July 16, 2009, when the market measure went home at 62.89.

Its yield ballooned out by 10 bps, to 7.28%, its fourth straight widening out and fifth rise in the last six sessions. The yield had increased by 4 bps on Wednesday on top of 2 bps gains on both Monday and Tuesday.

However, the Markit Series 25 CDX North American High Yield Index improved by 11/32 point on Thursday, finishing at 98 7/8 bid, 98 15/16 offered, in contrast to its 25/32 point loss on Wednesday. Thursday’s gain was its third in the last four sessions, with the index having risen on both Monday and Tuesday.

But the Merrill Lynch North American Master II High Yield continued to lose ground for a fourth straight session and for its sixth session in the last seven trading days.

It was down by 0.568% – its biggest one-day loss so far this year, surpassing the former mark of 0.413%, which had just been set on Wednesday

The loss extended its year-to-date deficit to 1.691% from 1.129% on Wednesday.

It was the fourth straight new biggest year-to-date loss seen so far in 2016, surpassing Wednesday’s cumulative red-ink level.

Funds see $2.1 billion cash loss

Another statistical market performance indicator – flows of investor money into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – posted its second consecutive net outflow this week and its fifth downturn in the last six weeks.

Some $2.107 billion more left those weekly-reporting-only domestic funds during the reporting week ended Wednesday in the form of investor redemptions than had come into them during that time, on top of the $809.1 million outflow the funds saw last week (see related story elsewhere in this issue).

© 2015 Prospect News.
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