Energy credits strengthen on drone attack, Vivint rises on merger with SPAC – Mid-Day Commentary

Oil prices, along with trading levels on a host of bonds backed by E&P borrowers, spiked this morning to price in the effects of the drone attack on Saudi Arabia’s oil reserves from over the weekend, noted multiple high yield traders and buyside sources.

The drone strikes reportedly impacted half of Saudi Arabia’s oil capacity, or 5% of the daily global oil supply. The impact could amount to the largest oil supply disruption in history.

WTI shot up 10% to trade at USD 60.35 per barrel today, compared to USD 54.85 per barrel on Friday. Brent spiked nearly 14% to USD 68.38, before settling to USD 66.51 per barrel. In tandem, bonds backing oil and gas producers and servicers rose several points, especially those of issuers with high leverage or constrained cash flow.

“This attack shows that it is strategically important to keep the US as an energy producer,” said a buyside analyst. “The heavy producers were always relevant, but the marginal producers are now more relevant. The over-levered [energy companies] that are squeaking by have all been trading like they’re going to file, but now they can rely on the oil prices to stay relevant for a bit longer.”

EP Energy is one of the sector’s borrowers on the brink where pricing swings could sway valuation. The company’s USD 500m 8% 1.25 lien notes due 2024 jumped to 48.5 this morning, from the previous trade of size at 42.85 on 11 September, according to MarketAxess. The distressed borrower’s USD 1bn 7.75% 1.125 lien notes due 2026 hit 83 today from 78.75 on 11 September.

Unmoved in trading thus far today are the USD 500m 7.875% unsecured notes issued by Alta Mesa, which filed for bankruptcy last week without a plan.  [Debtwire will host a live webinar on the situation today at 1pm ET.]  The 7.875% notes last traded at 15.5 on 13 September, down from 20 on 10 September.

Elsewhere in the E&P arena, Whiting Petroleum’s 1bn 6.625% senior unsecured notes due 2026 traded up today to 79 to yield 11.365%, up almost six points from 73.5 yielding 12.868% on Friday. The movement not only follows the Saudi oil field events, but also a new capital structure wrinkle the borrower disclosed this morning. A new credit agreement amendment permits the repurchasing of senior notes under a set of new conditions.

Also trading up this morning were Chesapeake Energy’s USD 1.3bn 8% senior unsecured notes due 2025, which jumped today to 87.25 to yield 11.24%, up six points from 81.25 yielding 12.976% on Friday. The issuer’s USD 850mm 7% senior unsecured notes due 2024 traded today at 86 to yield 10.633%, up around five points from 81.562 yielding 11.977% on Friday.

Likewise, California Resources’s USD 2.05bn 8% second lien notes due 2022 jumped today to 62 to yield 26.035%, up nearly seven points from 55.375 yielding 30.614% on Friday.

Southwestern Energy’s USD 927m 4.95% senior unsecured notes due 2025 rose today to 95 to yield 7.345%, up almost four points from 91.25 to yield 8.253% on Friday.

Diamond Offshore’s USD 500m 7.875% senior unsecured notes due 2025 traded at 96 to yield 8.754%, up nearly three points from trades at 93.5 to yield 9.326% on Wednesday (11 September), according to MarketAxess.

Offshore peer Valaris‘s (f/k/a Ensco) USD 333m 5.2% senior unsecured notes due 2025 traded today at 67.438 to yield 13.864%, up from trades at 63.5 to yield 15.246% on Friday.

Some energy services companies also caught an uplift. Nabors’s USD 586m 5.5% senior unsecured notes due 2023 traded today at 90.25 to yield 8.95%, up from trades at 87.5 to yield 10% on Friday.

Switching over to the home security space, Vivint bonds shot up 14 points today after the company announced its merger with Mosaic Acquisition Corp, a special purpose acquisition company. The merged company is valued at USD 5.6bn. Blackstone is retaining its investment in the company and also agreed to put in an additional USD 100m, while Fortress Investment Group has agreed to put in an additional USD 125m. The merger is expected to be completed in 4Q19 or 1Q20.

Vivint’s USD 400m 7.625% senior unsecured notes due 2023 gained nearly 14 points to trade at 94 to yield 9.478% today, up from trades at 80.594 to yield 14.202% on Friday, according to MarketAxess.

Petra Diamonds equity traded at all-time lows today after the diamond miner reported downward trending full-year earnings results, according to a hedge fund analyst.

The UK-based company reported adjusted EBITDA of USD 153m in FY19, down 22% compared to last year, as diamond prices continue to decline, according to a press release.

Petra’s LSE-traded equity hit GBP 7.53 per share, down 6.4% today and down from GBP 45 per share at the beginning of the year.

The company’s USD 650m 7.25% second lien notes due 2022 were quoted 85/87 today, higher than the 84 context earlier this month, in part due to better operational cash flow results. The company is under pressure to generate cash ahead of the 2022 maturity.

2019 Debtwire

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