Morning Commentary: High yield market opens weak; Chesapeake Energy bonds post modest gain

By Paul A. Harris

Portland, Ore., Feb. 24 – Junk bonds were ¼ point to ½ point weaker heading into mid-morning on Wednesday, according to a trader on the East Coast of the United States.

Energy names were down ½ point to a point, taking a disproportional hit on the back of sliding crude oil prices. The barrel price of West Texas Intermediate crude was down $1.03, or 3.23%, on the morning, at $30.84.

However the bonds of Chesapeake Energy Corp. got a slight lift early Wednesday as bond investors derived some encouragement from Chesapeake CEO Doug Lawler’s circle-up-the-wagons outlook on 2016, a trader said.

The Chesapeake Energy 8% second-lien notes due 2022, which came in a December distressed exchange, were 39 bid, 40 offered on Wednesday, up ½ point to a point.

“In light of the challenging commodity price environment, our focus for 2016 is to improve our liquidity, further reduce our cost structure and address our near-term debt maturities to strengthen our balance sheet,” Lawler stated in Chesapeake’s 2016 guidance and 2015 full-year and fourth-quarter results, which came out Wednesday.

Elsewhere, in the face of overall weakness in the Wednesday junk bond market high-yield ETFs were modest buyers, according to the trader, who reported seeing an offer wanted in competition (OWIC), although not a huge one.

The ETFs were posting declines heading into the mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 53 cents, or 0.68%, at $77.62 per share. SPDR Barclays High Yield Bond ETF (JNK), at $32.40 per share, was down 26 cents, or 0.8%.

ETFs were also buyers on Tuesday, the trader said.

However a different trader was chalking up the most recent ETF activity to residual buying and added that the axes were not showing much conviction one way or another.

Solera soloing

The mid-week session got underway with just a single deal in the market, and sources say it’s facing headwinds.

Solera, LLC and Solera Finance, Inc. set price talk in a $2.03 billion equivalent offering of eight-year senior notes (Caa1/B-).

The deal, via left bookrunner Goldman Sachs, is coming in tranches of dollar-denominated and euro-denominated notes, the sizes of which remain to be determined.

The dollar-denominated notes are talked to yield 10¾% to 11%. That official talk came well wide of earlier guidance of 9½% to 10%, sources said.

The euro-denominated notes are talked to yield in the 25 basis points area inside of the yield of the dollar-denominated notes.

Books for the dollar-denominated notes are scheduled to close at 1 p.m. ET on Wednesday, and the deal is set for a Thursday execution.

Beyond Solera the active calendar is empty.

Tuesday inflows

The cash flows of the dedicated high-yield funds were persuasively positive on Tuesday, a trader said.

High-yield ETFs saw $372 million of inflows on the day.

Actively managed funds saw $275 million of inflows.

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