Morning Commentary: High yield firm in thin late-summer trading; energy under pressure

By Paul A. Harris

Portland, Ore., Aug. 27 – Some high-yield names were ¼ point to ½ point better on Tuesday morning in thin, late-summer trading volume, according to a bond trader in New York.

With the U.S. stock markets posting moderate gains, high-yield ETF share prices were flat to slightly better at mid-morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.07%, or 6 cents, at $87.04 per share.

In news impacting high-yield credits, Alta Mesa Resources, Inc. reiterated going-concern language that first surfaced in May.

The company stated in a Monday 10-K document filed with the Securities and Exchange Commission that it may have to file for Chapter 11 bankruptcy.

In the filing Alta Mesa Resources spelled out the challenges it faces, in lieu of current commodity prices, to comply with the covenants in its reserve-based loan (RBL) and its 7 7/8% senior notes due December 2024.

The company is seeking waivers and amendments from its RBL lenders.

Should those waivers and amendments not be forthcoming the RBL lenders may accelerate repayment, which could result in an event of default and an acceleration of the 2024 notes, the company said.

“We have concluded that these circumstances create substantial doubt regarding our ability to continue as a going concern,” Alta Mesa Resources said in the Monday filing.

The New York trader last saw the deeply distressed Alta Mesa Resources 7 7/8% senior notes due 2024 trade at 22¾ bid, 23 offered a week ago and saw no evidence of trading in the interim but conceded that in the wake of Monday's filing lower markets might surface.

Elsewhere in the troubled energy sector, Range Resources Corp.’s bonds were down 1/8 of a point as S&P Global Ratings lowered the Fort Worth-based independent oil and natural gas producer's unsecured issue-level ratings to BB from BB+.

The Range Resources 4 7/8% senior notes due May 2025 were 99 3/8 bid on Tuesday, the trader said.

Crude oil prices were posting modest gains at mid-morning.

The barrel price of West Texas Intermediate crude for October 2019 delivery was up 0.69%, or 37 cents, at $54.01.

Meanwhile the dollar-denominated new issue market remained dormant and is expected to stay that way for another week, at which time market participants – many now taking mandatory vacations – will rejoin the market following the extended Labor Day holiday weekend in the United States, which concludes when the market reopens on Sept. 3.

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