High-yield energy analysts say recent widening in the bonds of Vintage Petroleum, largely due to the perception of heightened risk associated with its Argentine assets, has made it one of the more attractive plays in the energy sector. One sell-side analyst says he is considering upgrading his recommendation on the bonds to buy from hold, as he has watched them widen some 300 basis points over the last two months. The Vintage 7.875% notes of '11 (B1/BB-) were trading at close to a 10% yield at 480 basis points off the curve last Tuesday. He says that because the company has a strong management team with a good track record, he believes Moody's Investors Service will give it some breathing room before lowering ratings further. Moody's downgraded the company late last month with a negative outlook. He sees 75 basis points worth of short-term tightening in the name, and says it will trade at close to an 8% yield longer term once it resolves difficulties surrounding the integration of its recent purchase of Genesis Exploration.
Vintage has strong asset protection in its oil reserves even excluding its Argentine assets, says Erik Dybesland, analyst at Deutsche Bank, and the top-rated energy analyst on the 2001 Institutional Investor All-America Fixed-Income Research Team. "It's gotten to a level where it's attractive. We're saying people should double down if it goes lower," he says. Dybesland sees the bonds yielding 8-9% in 12-18 months. He says he has been a supporter of the company for some time and he was surprised by recent weakness in the name. Nonetheless, he says he is sticking by the credit, and recommends all the bonds in the capital structure.