Energy names firm despite oil price retreat; steel issues gain as feds slam Chinese competitors

By Paul Deckelman

New York, May 26 – Traders in the distressed-debt market said Thursday that bonds of oil and natural gas companies, which have lately been on a roll, continued to post gains.

Among the day’s winners were such familiar names as Chesapeake Energy Corp. and California Resources Corp., energy and mining concern Freeport-McMoRan Inc. and Basic Energy Services Inc.

Those gains came despite a slight downturn in world crude oil prices on oversupply concerns, after several straight sessions during which benchmark grades of crude oil had firmed handsomely.

Industry watchers said that the bonds strengthened as the crude prices approached the psychologically potent $50 per barrel mark, after months of having traded well below that price point.

Away from the energy realm, traders meanwhile noted strength in steel industry credits such as AK Steel Holding Corp. and United States Steel Corp. The steelers’ bonds and shares got a boost on the news that U.S. trade authorities had slapped heavy duties on imports of corrosion-resistant steel coming in from China.

Additionally, the federal trade body said it would open an investigation in to U.S. Steel’s separate claim that Chinese competitors had stolen its trade secrets.

In the convertibles market, Ionis Pharmaceuticals Inc.’s paper was hammered down on the news that GlaxoSmithKline, the co-developer of one of its main medications, has decided not to initiate a Phase 3 study with the developer of gene-based drugs.

Energy up though oil prices lag

Traders saw oil and natural gas exploration and production company paper generally better on Thursday, even though crude prices retreated, backing off from early high highs which had carried the international benchmark grade, Brent crude for July delivery, briefly above the magic $50 per barrel mark – a psychologically important support level that has not been seen since last November.

Brent ended down 15 cents per barrel on Thursday trading on the London ICE Futures Exchange, settling in at $49.59 per barrel. The benchmark U.S. crude grade, July West Texas Intermediate, also approached the $50 mark before backing off and ending down 8 cents on the New York Mercantile Exchange, at $49.48 per barrel.

Despite that small downturn, investors seemed bullish on the prospect that energy prices will continue to firm amid supply disruptions and increased demand, and took energy company bonds higher.

California Resources’ flagship 8% notes due 2022 firmed by ½ point on Thursday to 73¼ bid, on healthy volume of more than $30 million.

Chesapeake Energy “had some activity,” a trader said, seeing its 8% notes due 2022 up 1¼ points at just under 80½ bid, with over $17 million traded.

The deeply distressed bonds of Basic Energy Services were 1 point better at 34¾ bid, on volume of over $11 million

Freeport-McMoRan – a play on both the oil and gas and the metals sectors – was also on the upside on Thursday, its 3 7/8% notes due 2023 higher by 1½ points at 82½ bid, although a market source saw the company’s 3.1% notes off slightly at 91¼ bid.

Halcon Resources Corp.’s 8 5/8% notes due 2020 ended up 1 point on the day at 95 bid.

Steel strengthens on U.S. move

Away from the energy credits, traders noted brisk activity in the bonds of domestic steelmakers such as U.S. Steel and AK Steel, as well as ArcelorMittal, which, while headquartered in Luxembourg, has a substantial manufacturing presence in the United States, having bought up the remnants of many failed former American steel companies over the past decade.

“The U.S. imposed anti-dumping tariffs on China, and that’s positive for the whole steel structure,” one trader said.

He noted that U.S. Steel’s recent issue of 8 3/8% notes due 2021 were up over 1 point, pegging the bonds around a 103 to 104 bid context. Over $22 million of those notes changed hands.

Another trader had them at 103½ bid, calling that nearly a 2 point gain.

The Pittsburgh-based integrated steel maker had sold $980 million of the notes, pricing them at par back on May 3.

West Chester, Ohio-based sector peer AK Steel’s 7 5/8% notes due 2020 gained more than 3 points, pushing up to 82¼ bid, on volume of over $10 million.

Another trader saw Arcelor Mittal’s 5¼% notes due 2020 up ¾ point at 103¼ bid.

The U.S. Commerce Department announced that it was imposing anti-dumping and anti-subsidy duties of up to 450% on corrosion-resistant steel from China.

The department also said that it would impose anti-dumping duties of 3% percent to 92% on producers of corrosion-resistant steel coming from Italy, India, South Korea and Taiwan.

Separately, the U.S. International Trade Commission announced that it has launched an investigation into U.S. Steel’s allegations that the company’s Chinese competitors had stolen its trade secrets via computer hacking, had fixed prices and had misrepresented the origin of their exports to the United States.

China criticized both American government actions.

Ionis converts crushed

In the convertibles market, Ionis Pharmaceuticals’ 1% convertible bonds due 2021 slid 12 or 13 points on an outright basis on Thursday into the mid-70s after news that GlaxoSmithKline, the co-developer of its therapy for patients with TTR amyloid cardiomyopathy, has decided not to initiate a Phase 3 study with the Carlsbad, Calif.-based developer of gene-based drugs.

Ionis said it is currently evaluating IONIS-TTRRx in an ongoing Phase 3 study, Neuro-TTR, in patients with transthyretin (TTR) familial amyloid polyneuropathy. In addition, the company is evaluating Ionis-TTRRx in an investigator-initiated Phase 2 open-label study in patients with TTR-related amyloid cardiomyopathy.

GlaxoSmithKline, which has an option to exclusively license Ionis-TTRRx, has decided not to initiate a Phase 3 outcome study, Cardio-TTR, which was planned to evaluate the therapy.

As announced in April, the U.S. Food and Drug Administration had placed this study on clinical hold as a result of safety findings.

Ionis shares plunged $13.90, or 39%, to $21.36 in ultra-heavy volume.

Ionis’ 1% convertibles due 2021 traded at about 75 during the session and were indicated down at 74.4 at the end of the day, from 87 previously.

Ionis, formerly known as Isis Pharmaceuticals Inc., changed its name to Ionis in December 2015.

-Rebecca Melvin contributed to this review

© 2015 Prospect News.
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