Morning Commentary: Algeco dollar paper, EnVen gain; Sanchez, TransMontaigne, Halcon on deck

By Paul A. Harris

Portland, Ore., Feb. 7 – The tone of the high-yield bond market felt all right at mid-morning Wednesday, according to a trader, who sensed some short covering taking place in the early stretch of the session.

It has been a rocky ride through the recent capital markets turbulence for energy paper, said the trader, who is focused on that space.

Take, for example, the recent trip through the primary market undertaken by EnVen Energy Corp., which priced $325 million of five-year senior secured second-lien notes (Caa1/BB-) at par to yield 11% on Tuesday.

The Houston-based independent oil and natural gas exploration and production company approached the market proposing a rate in the 9½% to 10% area, prior to the turbulence, which drove price talk to 11% to 11¼%.

Ultimately the deal must have looked cheap to investors because the new EnVen 11% notes due in February 2023 were trading at 102¼ bid on Wednesday, according to the trader, who surmised that participation in the deal may have been notably concentrated, with perhaps 10 investors – perhaps less – taking it down.

In the wake of EnVen there were no fewer than three energy sector companies that will attempt to price deals on Wednesday.

Sanchez Energy Corp. talked its $400 million offering of five-year senior secured first-lien notes (B1/BB-) to yield 7½% to 7¾%.

Official talk comes tight to initial guidance in the high 7% area.

Books close at 1 p.m. ET on Wednesday, and the deal is set to price and allocate thereafter.

Halcon Resources Corp. plans to price a $200 million add-on to its 6¾% senior notes due Feb. 15, 2025 on Wednesday.

The guidance is 103, according to the trader, who reckons that with the existing notes closing at 104¾ bid on Tuesday, the tap will come rich to that guidance.

And TransMontaigne Partners LP and Finance-Co. is set to price its $300 million offering of eight-year senior notes (B2/BB-/BB), talked to yield 6¼% to 6½%.

TransMontaigne will get done, the energy trader asserted.

Meanwhile Jones Energy Holdings, LLC is in the market with a $450 million offering of five-year first-lien paper expected to price later in the week.

Early guidance is in the mid-9% area all-in yield, a market source said.

The company’s existing bonds have been under pressure – down a couple of points, and 6 to 7 points off their highs – a trader said on Wednesday, adding that the market anticipates covenant changes to the first-lien notes now being marketed.

The energy sector has been conspicuous amid the recent capital market turbulence, the energy trader conceded.

Crude oil prices as well as natural gas prices have been volatile.

The barrel price of West Texas Intermediate crude for March 2018 delivery was down $1.40, or 2.21%, at $61.99 at mid-morning Wednesday.

As long as the price is above $60 you shouldn't see drastic swings in the energy bonds, the trader said, adding that at that price investors are confident that the energy companies can make money.

Algeco Scotsman higher

Both Algeco Scotsman dollar-denominated notes were trading substantially higher on Wednesday, a trader said.

The new Algeco Scotsman Global Finance plc 8% senior secured fixed-rate notes due Feb. 15, 2023 (B2/B-/B+) were 99½ bid on Wednesday morning.

The $520 million tranche priced at 97.997 to yield 8½% on Tuesday.

The new Algeco Scotsman Global Finance 2 plc 10% senior unsecured fixed-rate notes due March 15, 2023 (Caa1/CCC/CCC+) were 97 bid on Wednesday.

The $305 million tranche priced Tuesday at 94.008.

Mixed Tuesday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Tuesday, a trader said.

High-yield ETFs saw $176 million of inflows on the day.

However actively managed high-yield funds took it on the nose, sustaining $545 million of outflows on Tuesday, the source said.

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