Oil-Patch Deals Fuel Energy Bond Gains
October 18 2019 - 1:28PM
Dow Jones News
By Matt Wirz
Falling oil and gas prices are delivering a surprise windfall to
bondholders of some U.S. energy companies.
Declining valuations are attracting bargain hunters to the oil
patch. That's allowed companies including Jagged Peak Energy LLC
and Indigo Natural Resources LLC to sell assets in recent days,
raising cash that could be used to pay down their junk-rated
debt.
The announcement of the transactions triggered gains in the debt
of the companies divesting assets.
The deal-related upswings are rare bright spots for investors in
energy bonds, which have plummeted in recent months as fossil-fuel
prices dropped amid a supply glut and waning demand. Bonds of
Antero Resources Corp., for example, fell about 7% on Friday,
according to data from MarketAxess, after the company reported
third-quarter earnings.
"We're excited about the opportunity to reduce our leverage,"
said Indigo Chief Financial Officer George Francisco. "It sets up
Indigo to be a more sustainable business."
Houston, Tex.-based gas producer Indigo's $650 million bond due
2026 jumped 10% on Friday to about 96 cents on the dollar,
according to data from MarketAxess, after DTE Energy Co. announced
it would pay $2.25 billion for a natural-gas pipeline 50% owned by
Indigo. Indigo will use its share of the proceeds to pay off a
separate $300 million privately held bond and the balance on its
commercial bank lines, cutting in half its ratio of debt to
earnings before interest, tax, depreciation and amortization to
about one times Ebitda, Mr. Francisco said.
Jagged Peak's $500 million bond due in 2026 rose to 101 cents on
the dollar this week from about 98 cents, according to data from
MarketAxess. The move followed the company's announcement Monday
that it would be acquired by Parsley Energy Inc. in an all-stock
deal valued at $2.27 billion. Parsley has a double-B minus credit
rating, compared to Jagged Peak's single-B plus, and said in a
statement that it believes the asset purchase will help it achieve
an investment-grade rating.
U.S. government bond prices rose Friday as analysts increasingly
expect the U.S. Federal reserve to cut interest rates at the end of
October. The yield on the benchmark 10-year Treasury note was a
recent 1.741% compared with 1.757% Thursday. Bond yields fall when
their prices rise.
The WSJ Dollar Index, which measures the U.S. currency against a
basket of 16 others, dropped slightly to 90.67 Friday from 90.79
Thursday amid a decline in stocks globally.
Daniel Kruger contributed to this article.
(END) Dow Jones Newswires
October 18, 2019 13:13 ET (17:13 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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