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 has 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 on rising demand for renewable energy from consumers and corporations. 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 in today's commodity price environment."
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 with 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 1.747% compared with 1.757% Thursday. The yield has fallen in four of the past five weeks. 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 90.48 Friday from 90.79 Thursday amid a decline in stocks globally.
Daniel Kruger contributed to this article.
Write to Matt Wirz at email@example.com