Trying out the new posting features...
This is an update to my watchlist of ten energy junk bonds: LINE, MEMP, BBEP, VNR, SDRL, NADL, SD, HK, MHR, GDP. Why these particular ones and not some others? No particular answer, beyond that I'd started looking up bonds for companies I've seen mentioned here and in articles, and the action in these ten particular bonds seem like a fairly good representation of what's happening in energy junk. These bonds were issued at different times, with different coupons and different maturity dates, and probably differing covenants. Some trade more thinly, some are seeing a great deal of activity. I present yield to maturity and price (how many cents on the dollar) as I think that's the most useful information and is what financial writers are quoting in articles and talking heads are quoting on television. Yield to maturity factors in both the coupon and the difference between market price and par value, in order to express an annualized rate of return assuming you were to hold to maturity and see all your principal returned. In other words, buyers of these bonds at these prices will achieve that annualized rate of return if all interest payments are made and the bond is eventually paid off at par.
We can look at the idea of how "distressed" these bonds are in different ways, one being that the current market prices are informing us of the approximate rate of return the bond market presently feels is appropriate for the high risk (which we may or may not agree with). This can be useful for thinking about what a company might be facing as far as financing cost if a deal had to be done in this environment -- at a certain level we might conclude that a company is going to be facing more expensive debt in the future and/or might need an equity capital infusion; at a certain point where we start to get into the realm of "equity rates of return" on the debt, it could make us question what the ultimate fate of the current equity will be; and at the extreme end we see levels that start to imply that not only is the current equity at a high probability of ultimately ending up worthless, but the bondholders seem to expect they will not be seeing all of that principal come back to them.
As distressed energy junk bonds exert pull on other bonds in the junk bond market, I've also been including current yield on the "BofA Merrill Lynch US High Yield Master II" index as a proxy for junk bonds broadly -- we want to know if other junk borrowers are facing higher costs. I saw this index quoted in an analyst report once, found it on the St. Louis Fed website (which gives a great deal of data), and I have been watching it ever since as a way to keep tabs on broad junk yields.
When I started posting this watchlist weekly, I said I didn't foresee the need to continue watching energy bonds this closely in perpetuity, as this current storm of unknown size would, eventually, blow over, but that I'd continue to make weekly posts to the thread while I felt it remained useful to do so. I've been feeling that regular updates had outlived their usefulness, so this will be my last regular weekly update. If I update this again it will be sporadic. I'm including all the links for anybody who wants to check these bonds more regularly.
BofA Merrill Lynch US High Yield Master II Effective Yield [broad Junk bond index]
Last week: 6.30%
This week: 6.24% (3/26)
BofA Merrill Lynch US High Yield Master II Option-Adjusted Spread [spread over "risk free" rate]
Last week: 4.79%
This week: 4.74% (3/26)
WTI
Last week: 45.55
This week: 48.45
Energy junk bond watch list at 3/27 (or as noted):
Company Yield to maturity Price
--------------------------------------
SDRL 12.95% 85.00
LINE 11.67% 77.00
VNR 9.34% 94.25
BBEP 15.04% 69.50
MEMP 9.11% 88.20
MHR 13.25% 87.25
HK 18.20% 72.00
NADL 16.32% 72.00 (3/20)
SD 18.83% 69.04
GDP 34.13% 47.25
Last week's watch list prices:
Company Yield to maturity Price
--------------------------------------
SDRL 13.47% 83.94 (3/19)
LINE 11.68% 76.90 (3/19)
VNR 9.40% 94.00 (3/19)
BBEP 15.03% 69.50 (3/19)
MEMP 9.15% 88.00 (3/19)
MHR 13.31% 87.00 (3/19)
HK 20.13% 67.00 (3/19)
NADL 16.50% 71.50 (3/16)
SD 20.01% 66.18 (3/20)
GDP 38.15% 42.40 (3/19)
SDRL: http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C581659&symbol=SDRL3900814
LINE: http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C616341&symbol=LINE4161381
VNR: http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C573045&symbol=VNR3840075
BBEP: http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C589069&symbol=BBEP3951154
MEMP: http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C614527&symbol=MEMP4144564
MHR: http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C602697&symbol=MHR4062189
HK: http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C593811&symbol=HK4001501
NADL: http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=FSDRL4094226&symbol=SDRL4094226
SD: http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C534311&symbol=SD.AE
GDP: http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C570827&symbol=GDP3815330
http://research.stlouisfed.org/fred2/series/BAMLH0A0HYM2EY
http://research.stlouisfed.org/fred2/series/BAMLH0A0HYM2