DaVita bonds leak after executive order, McDermott rises on contract win, O&G bonds climb with oil prices – Mid-Day Commentary

Dialysis provider DaVita’s bonds have softened after news reports on Monday (8 July) said that President Trump is set to sign an executive order today calling for the government to overhaul care for Americans suffering from kidney disease, said two buysiders.

The order will outline ways to keep people with kidney disease off dialysis longer, make treatment less expensive, and encourage more live donations of the organ, among other items.

Investors are questioning what such plans may mean for reimbursement rates. “I’ve been focused on what this might mean since the announcement,” said one buysider. “What is most important is what it does to commercial prices.”

Dialysis companies earn virtually all their profits from patients with commercial insurance, which pays a higher rate than those insured by Medicare. The market is also highly concentrated as DaVita, along with Fresenius, control 74% of the dialysis market, according to Moody’s.

DaVita’s USD 1.5bn 5% senior unsecured notes due 2025 traded as low as 97.25 to yield 5.559% yesterday, recovering slightly to trade today at 98 to yield 5.405%, down from trades at 99.375 to yield 5.124% on Monday (8 July) before the news came out, according to MarketAxess.

The more levered US Renal bonds also showed softness in an odd lot trade. Its USD 505m 10.625% unsecured notes due 2027 changed hands yesterday at 99 to yield 10.81%, down two points versus 101 on Monday.

McDermott bonds advanced this morning following the announcement of a new contract with Saudi Aramco, according to a trader. The issuer announced a USD 1.5bn contract to provide engineering, procurement, construction and installation (EPCI) for the Marjan Increment Development Project.

McDermott’s USD 1.3bn 10.625% senior unsecured notes due 2024 gained three points to trade at 96.25 to yield 11.657% from trades at 93.25 to yield 12.524% yesterday, according to MarketAxess.

The oil & gas sector also got a boost this morning as oil prices rose nearly 2% this morning, with E&P and services provider bonds gaining several points, according to a sellsider and trader.

WTI is quoted today at USD 59.46 per barrel, up 1.92% from yesterday’s close.

Chesapeake Energy’s USD 1.3bn 8% senior unsecured notes due 2025 traded today at 89.5 to yield 10.562%, up from trades at 88 to yield 10.957% yesterday, according to MarketAxess.

Southwestern Energy’s USD 500m 7.75% senior unsecured notes due 2027 traded today at 94.813 to yield 8.641%, up from trades 93 to yield 8.968% yesterday, according to MarketAxess.

Gran Tierra Energy’s USD 300m 6.25% senior unsecured notes due 2025 ticked up a point to 95.25 to yield 7.298%, from trades at 94.25 to yield 7.526% yesterday, according to MarketAxess.

Antero Resources’ USD 600m 5% senior unsecured notes due 2025 rose more than a point to 92.25 to yield 6.67% from trades at 91 to yield 6.955% yesterday, according to MarketAxess.

The US chemical sector has weakened over the last two days after German chemical company BASF SE disclosed a severe profit warning on Monday, according to a trader. BASF forecasts 2Q19 earnings to be more than 60% lower than consensus estimates, citing US-China trade tensions, US weather conditions and an overall downtrend in the automotive sector as the reasons for the decline.

In a knock-on effect, Olin’s USD 500m 5.125% senior unsecured notes due 2027 traded down to 100.063 to yield 5.111% from trades at 101.03 to yield 4.913% yesterday (9 July) and trades in the 102-103 range earlier this month, according to MarketAxess.

Nouryon’s (fka AkzoNobel Specialty Chemicals) USD 605m 8% senior unsecured notes due 2026 ticked down to 99 to yield 8.182% from trades in the 100-101 area yesterday (9 July), according to MarketAxess.

Hexion’s USD 450m 7.875% senior unsecured notes due 2027 shed roughly a point to 98.75 to yield 8.088% from trades at 99.5 yesterday, according to MarketAxess.

2019 Debtwire

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