A weaker-than-expected earnings picture for energy service providers should cause buy-siders to reevaluate credits such as Trico Marine Services, Hornbeck Offshore Services and Grey Wolf, according to Christy Parsons, high-yield energy analyst at CIBC World Markets.
Trico's 8.75% notes of '12 had drifted down to a bid of 90.5 last Tuesday, creating a buying opportunity as the third quarter outlook does not appear to be materially weaker than the second, says Parsons. She also believes Hornbeck's bonds offer an attractive yield, particularly in light of the added liquidity a planned $100 million initial public offering will provide. That company's 10.625% notes of '07 were bid at 102 last Tuesday.
Grey Wolf offers less yield, and if investors can sell it at par they should do so, she says. A bid of 99 was seen for the bonds at one desk, while another saw them at par.
One West Coast portfolio manager says his firm has steered clear of the whole sub-sector because it trades too tight relative to exploration and production companies, which have better balance sheets. He says he would look at the Trico bonds only if they fell to 87.5, and he would pick up Grey Wolf only at 95.