January supply eyed; energy names skyrocket; Chesapeake’s new secured notes in focus

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 3 – While the domestic high-yield primary market opened 2020 quietly, that is expected to change in the coming week.

Floodgates are expected to open during the Jan. 6 week with the first month of 2020 rumored to be a big one for new issuance.

Meanwhile, the secondary space was soft on Friday alongside equities although trading volume remained thin, sources said.

While the overall market was soft, the energy space was firm with several names skyrocketing as crude oil futures rose amid escalating tensions in the Middle East.

The junk bonds of California Resources Corp., Whiting Petroleum Corp., Oasis Petroleum Inc. and Moss Creek Resources Holdings were among the major gainers of Friday’s session.

However, Chesapeake Energy Corp.’s newly issued 11½% senior notes due 2025 were the most actively traded energy bond in the secondary space.

The notes were posting gains after trading at a deep discount since they were issued in a distressed debt exchange in mid-December.

Hit the ground running

With a sizable portion of market participants extending the year-end holidays through the coming weekend – an early January torpor took hold of the junk bond market, sources say.

However, that torpor should conclude rapidly in the week ahead, they add.

Expectations have the new issue market hitting the ground running on Monday, a New York-based trader said on Friday.

Market chatter has January shaping up to be a big month, the source added.

There are no announced deals on the active forward calendar, ahead of the first weekend in January.

However, one prospective issuer that is expected show up in the January 6 week is Presidio Holdings Inc., with a $400 million offering of senior notes, a bridged deal which is part of the debt financing for BC Partners' $2.2 billion buyout of the New York-based IT solutions provider, sources say.

A couple of other situations should result in 2020 junk bond issuance, likely in the first or second quarters, although details remain to be determined, a buyside source said.

The merger of Callon Petroleum Co. and Carrizo Oil & Gas, Inc., finalized by means of a late December vote by shareholders of both companies, will probably result in bond issuance, perhaps as much as $1 billion, in the earlier part of the year, the source said.

As reported, Callon Petroleum entered into a credit agreement that provides for up to a $5 billion senior secured revolver with an initial borrowing base of $2.5 billion and initial commitments of $2 billion, concurrent with the merger approval vote by shareholders.

Energy firm

While the overall secondary market was soft on Friday as equities tumbled amid new geopolitical risks, the energy sector outperformed.

The junk bonds of several energy names skyrocketed on Friday as tensions between the United States and Iran flared following an air strike in Iraq that killed a senior Iranian military commander.

California Resources’ bellwether 8% senior notes due 2022, which track crude oil futures, rose 5 points to 50, according to a market source.

The notes have slowly recovered throughout December as crude oil futures gained. The 8% notes were trading in the mid-20s in November.

Whiting Petroleum’s 6¼% senior notes due 2023 rose 3½ points to 88¼. Whiting’s 6 5/8% senior notes due 2026 rose 2¼ points to 71.

Oasis Petroleum’s 6¼% senior notes due 2026 rose 3½ points to 88½. The 6 7/8% senior notes due 2022 rose 2 points to 99½.

Moss Creek Resources’ 10½% senior notes due 2027 rose 2¼ points to 85¼.

Crude oil futures jumped on Friday due to the escalating tensions in the Middle East. The barrel price of WTI crude oil for February delivery settled at $63.04 on Friday, an increase of $1.86 or 3.04%.

Iran has promised to retaliate for the U.S. air strike in Iraq which killed Iranian Quds commander Qassem Soleimani.

If the situation escalates and disrupts global supply, crude oil futures could broach $70 a barrel, MarketWatch reported.

While the energy space was an underperformer in 2019, it was pointed to as a potential source for returns in 2020 if crude oil futures recover.

Chesapeake Energy in focus

While the energy sector was posting gains across the board on Friday, volume was relatively light with the exception of one issue.

Chesapeake Energy’s recently issued 11½% senior notes due 2025 were among the most actively traded issues in the secondary space.

The 11½% notes rose more than 2 points to close Friday at 96¾, according to a market source. The bonds saw more than $15 million in reported volume by the late afternoon.

The 11½% senior secured second-lien notes were issued on Dec. 17 in an exchange for the company’s unsecured debt.

The 11½% notes were seen trading on Dec. 23 in the 94 to 95 context, a market source said.

Chesapeake issued the 11½% senior secured second-lien notes in a tender offer for its 8% senior unsecured notes due 2025, 2026, and 2027, its 7½% senior notes due 2026, and its 7% senior notes due 2024.

Holders of the 8% notes who tendered their unsecured debt by the early deadline of Dec. 17 were issued $700 in principal of the new 11½% notes.

Holders of the 7% and 7½% unsecured debt were issued $620 in principal amount of the new 11½% notes.

While holders who participated in the exchange lost more than 30% of the principal of the initial bonds, they were offered the security of a higher place in Chesapeake’s capital structure and “a fat coupon,” a market source said.

Distressed debt exchanges have become commonplace in the energy sector in recent years and have helped companies stave off bankruptcy.

Chesapeake Energy’s capital structure cratered following its third-quarter earnings report in November with the company questioning its future viability if oil prices remained depressed.

While risky, the new notes may offer significant returns if Chesapeake is able to turn itself around and crude oil prices rebound, a source said.

Indexes mixed

Indexes closed Friday mixed.

The KDP High Yield Daily index rose 14 points to 71.95 with the yield now 4.85%.

The index was up 1 basis point on Thursday.

The ICE BofAML US High Yield index rose 7 bps with year-to-date returns now 0.205%.

The CDX High Yield 30 index sank 28 bps to close Friday at 109.58. The index closed Thursday at 109.86.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.