Energy bonds continue rise as crude prices firm again; healthcare hurting; Toys trades up

By Paul Deckelman

New York, June 26 – Traders in the bonds of distressed or underperforming companies saw a generally firm market on Wednesday, in line with a mostly bullish tone in the larger high-yield market.

One of the key components in that rise was strength among energy credits such as California Resources Corp., EP Energy Corp. and Continental Resources Corp., which were helped by a third consecutive session of hefty gains in world crude oil prices. Crude strengthened against a backdrop of greater-than-expected inventory drawdowns, as reported by the U.S. Energy Information Administration.

Traders meantime saw continued weakness among hospital operators like HCA Inc., Tenet Healthcare Corp. and Community Health Systems Inc.; the sector was seen under pressure in response to disappointing earnings that HCA reported on Tuesday, as well as the uncertainty swirling around the fate of existing healthcare laws in the United States and their possible replacements.

Elsewhere, Toys R Us Inc.’s bonds were seen posting solid gains, although traders could not readily explain the rise in the specialty retailer’s paper.

Traders saw gains in iHeart Communications Inc. paper, and in the various issues of Intelsat SA.

Energy credits up with crude

Traders saw a number of oil and gas names riding the crest of recent upside momentum in world crude oil prices.

For instance, Extraction Oil & Gas, Inc.’s recently priced 7 3/8% notes due 2024, were seen by a trader having shot up by 1 point on the day, to 103 bid, 103½ offered.

The Denver-based oil and natural gas exploration and production company had priced its $400 million drive-by issue at par on July 18, after the deal was upsized from $350 million originally

Among other sector names on the rise Wednesday, Los Angeles-based E&P operator California Resources Corp.’s sector bellwether 8% notes due 2022 were up ¾ point on the day at 65¾ bid, a trader said, with over $22 million having traded.

Houston-based EP Energy’s 8% notes due 2024 were likewise up ¾ point, at 102 bid, with over $10 million traded.

And Denver-based Continental Resources Corp.’s 4½% notes due 2023 gained ¼ point to end at 97¾ bid, with around $10 million having moved around

A trader said that “some of the energy names were spiking on the run-up in oil and the drawdown in inventories.”

September-contract West Texas Intermediate, the benchmark U.S. crude grade, rose by 86 cents per barrel Wednesday on the New York Mercantile Exchange, settling in at $48.75 – its third consecutive upside session. On Tuesday, it had shot up by $1.55.

September-delivery North Sea Brent crude, the key international grade, also rose for a third straight day, finishing London trading up 77 cents per barrel at $50.97; Brent had jumped by $1.63 per barrel on Tuesday.

The strength in crude prices was helped on Wednesday when the U.S. government Energy Information Administration reported that crude inventories fell by more than 7 million barrels this week – more than twice the roughly 3 million barrel drawdown that analysts had been looking for.

That drawdown markets the fourth straight week of significant inventory decreases, and pushes the total inventory figure below year-ago levels – the first time that has happened so far this year.

While the trader also saw the California Resources 8% paper on the rise Wednesday, he said the rising tide was not necessarily lifting all boats.

For instance, he said that EP Energy’s 8% notes due 2025 were unchanged on the day at 79 bid.

And he said that Sanchez Energy’s 6 1/8% notes due 2023 “actually trading down 2½ points,” at 83 bid. He said the Houston-based company’s notes were “very active.”

But he also said that “generally,” things in the sector “were a little bit higher.”

For instance, offshore oil drilling contractor Noble Energy’s 7¾% notes due 2024 moved as high as 81 bid, “but then moved back,” to end at 80½ bid, up only slightly on the day

Healthcare still hurting

Away from the energy empire, a trader said that the healthcare names “have been trading off because of Hospital Corp.’s [i.e., HCA’s] announcement of earnings.”

He said that HCA’s 5½% notes due 2047 were down 1/8 point at 105 1/8 bid.

The Nashville-based hospital giant on Tuesday reported a 4% gain in revenue during the second quarter, to $10.73 billion, missing analysts' estimate of $10.85 billion.

Adjusted earnings came in at $657 million, or $1.75 per shares, about a nickel lower than Wall Street was expecting.

HCA issued lower guidance, projecting earnings per share for the year in the range of $7 to $7.30, down from the $7.20-to-$7.60 context it previously forecast.

HCA’s bad news proved to be contagious, with other sector names also falling.

The trader saw Dallas-based rival hospital operator Tenet Healthcare’s 6¾% notes due 2023 down ¾ point at 100 ¼ bid.

Its5 1/8% notes due 2025 were off by 1/8 point at 101 5/8 bid.

But the big loser for the sector was Franklin, Tenn.-based Community Health Systems, whose 6 7/8% notes due 2022 plunged by plunged by more than 4 points, ending at 85 ¾ bid, on volume of over $29 million, a market source said.

Besides the bad earnings news from HCA, the sector was seen under pressure due to the continued uncertainty arising out of Washington maneuverings on whether or not to repeal the current Affordable Care Act – “Obamacare” – and replace it with some other healthcare plan, whose parameters have not been worked out yet.

On a related note, among the pharmaceuticals, a trader saw “a little action” in Canadian drug manufacturer Valeant Pharmaceuticals International Inc.’s 6 1/8% notes due 2025, which he saw down 1/8 point at 86¼ bid. He said the issue generated “reasonable volume.”

Toys trades up

Elsewhere traders saw better levels in Toys ‘R’ Us paper – although none saw any fresh news out about the Wayne, N.J.-based specialty retailer, which has been fighting an uphill battle to retain market share against online retailers like Amazon.com, to explain its rise.

A trader saw its 12% notes due 2021 up ½ point, at 96¾ bid, with about $9 million traded.

A second trader saw its 7 3/8% notes due 2018 doing even better, up by 1 7/8 points to end the day at 99¼ bid.

iHeart shows improvement

Among other names, a trader saw “a bunch” of iHeart’s 11¼% notes due 2021 trading, calling them up ¼ point on the day at 75¾ bid.

He said the San Antonio-based radio broadcasting and outdoor advertising company’s 9% notes due 2019 were up by 5/8 point, ending at 80 5/8 bid, on “just a couple of trades.”

He saw only one sizable trade take place in iHeart’s 9% notes due 2021, which moved up by ¾ point to 75 bid.

iHeart is currently trying to get its creditors to go along with company plans to take out some of its existing debt.

Intelsat gains altitude

A trader said that Luxembourg-based communications satellite company Intelsat Jackson Holdings SA’s 5½% notes due 2023 traded up by ½ point at 85½ bid.

Its Intelsat (Luxembourg) SA 8 1/8% notes due 2023 gained 1¾ points on the day, going out at 59¾ bid.

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