January 29, 2013 / 8:40 PM / 5 years ago

Hess bond spreads widen sharply as Elliott seeks breakup

NEW YORK, Jan 29 (IFR) - Yield spreads on bonds issued by oil and gas company Hess widened 25 basis points on Tuesday to become the latest victim of a rise in investor activism.

The move came amid expectations that hedge fund Elliot Management would be successful in implementing drastic steps to enhance returns to the company’s shareholders at the expense of bondholders.

As of 3pm, Hess’s 5.6% 2041 bonds were the most actively traded bonds of the session, according to Tradeweb, widening 25bp to Treasuries plus 194bp.

The company’s 6.0% 2040s were trading 45bp wider at 217bp over Treasuries. Five-year credit default swaps were 22bp, or 14.5%, wider at plus 267.5bp-182.5bp.

Elliott Management, which owns a 4% stake in Hess, will push to nominate five executives to the board in a bid to break up the company, according to a letter published by Elliott. The fund will also push for a master limited partnership structure to maximize shareholder value.

The letter comes a day after Hess announced that it would sell its network of oil-storage terminals and its refinery business and become predominantly an exploration- and production-based business.

ConocoPhillips, Marathon Oil and Murphy Oil have all recently split off their refining operations to create additional value.

On Monday, Transocean bond spreads came under pressure after activist investor Carl Icahn said the company should return value to its shareholders by paying a dividend of at least US$4 a share.

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