Morning Commentary: Junk rebounds as crude oil price jumps; Whiting Petroleum bonds hammered

By Paul A. Harris

Portland, Ore., Feb. 12 – High-yield bond prices were improving Friday morning on the back of higher crude oil prices, according to a trader on the East Coast of the United States.

The barrel price of West Texas Intermediate crude for March delivery was up $1.70 at $27.91 heading into the New York mid-morning.

High-yield ETFs were in the market attempting to buy but were not having a lot of luck, the trader said.

ETFs were notably higher on Friday morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 67 cents, or 0.89%, at $76.26 per share. SPDR Barclays High Yield Bond ETF (JNK), at $31.77 per share, was up 28 cents, or 0.9%.

Whiting hammered

The bonds of Whiting Petroleum Corp. sustained a precipitous fall in price on news that Moody's Investors Service downgraded Whiting's corporate family rating to Caa1 from Ba2.

Bonds fell as much as 10 to 11 points, the trader said.

The Whiting Petroleum 5% senior notes due March 15, 2019 were at 37½ bid on Friday morning. They had been seen as high as 42 bid on Thursday, the trader said.

The downgrade reflects Moody’s expectation of very weak cash flow-based leverage metrics in 2016 and particularly in 2017, when Whiting’s hedges roll off.

With the company facing structurally low oil prices through 2017, and a heavy debt burden, there is a heightened risk of a debt restructuring, Moody’s said.

Quiet primary

There was no news in the new issue market Friday morning, the most recent news item being a negative one.

On Thursday afternoon LeasePlan Corp. NV cited adverse market conditions as it postponed its €1.55 billion equivalent three-part offering of senior secured notes (B1/BB+/BB-).

Look for that deal to resurface in March, a London-based sellside source said on Friday.

Solera, LLC is on the road with $2.03 billion equivalent of eight-year senior notes in tranches of euro-denominated and dollar-denominated notes.

Early on, the proposed dollar-denominated notes were discussed from the mid-to-high 9% range to the 10% area, sources say.

There is a significant element of reverse inquiry on the Solera deal, a trader said on Friday.

And Corus Entertainment Inc. is expected to start a roadshow on Tuesday for a C$300 million offering of seven-year senior notes (/B+/DBRS: B high), according to a buyside source.

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