Rue21 notes trade off, Claire’s rises; Caesars debt improves; California Resources, Memorial decline

By Stephanie N. Rotondo

Seattle, Aug. 3 – Distressed debt investors continued to focus on the energy arena on Wednesday, although there were a few other sectors making an appearance.

The retail sector, for instance, was getting some attention. Rue21 Inc.’s 9% notes due 2021 were more active than usual, but down from previous levels.

One trader said the debt was off 1½ points from the previous week, trading at 33½.

Another trader said the name was “a little more active,” placing the issue “around 33.”

He said the paper hadn’t traded in about two weeks, when they were around 35.

Given that Rue21 is a private company, news regarding the name is hard to come by. The trader said earnings could have been the catalyst, though he could not confirm that.

“It seems like something must have happened,” he said.

Claire’s Stores Inc. bonds were also somewhat more active. A trader said the 9% notes due 2019 were “better,” seeing them open around 57½, only to close near the highs of 61.

“There was definitely a bit of a rally there,” he said.

Another trader called the issue up 1½ points at 58 1/8.

Last week, it was reported that the company had entered into restructuring negotiations with bondholders.

Meanwhile, in the casino realm, Caesars Entertainment Corp.’s 10¾% notes due 2016 jumped 5 points to 70½, according to a trader.

The trader noted that the paper was up as much as 7 points intraday. He said news out Tuesday regarding the casino’s higher recovery offer to junior creditors of its bankrupt Caesars Entertainment Operating Co. was the likely catalyst for the gains.

“They are trying to make bondholders happy and I guess they were,” he said.

In an effort to get more creditors to sign on to its restructuring plan, Caesars has offered to pay junior bondholders as much as 55 cents on the dollar through a combination of notes and stock, assuming two-thirds of said group agrees to the plan.

As of late Monday, about 37% of junior creditors had signed on.

Energy in play

As for the ever-active energy arena, a trader said California Resources Corp.’s bonds were drifting lower yet again.

He placed the 8% second-lien notes due 2022 at 56, off over a point. The 5½% notes due 2021 meantime dipped 3 points to 45 1/8.

The bonds have been mostly trending lower since Monday when the Los Angeles-based oil and gas company announced a tender offer for four series of notes.

Memorial Production Partners LP’s 6 7/8% notes due 2022 were meantime trading down 3 points to 45½, a trader said.

The weakness came as the company reported quarterly earnings, showing an adjusted loss per share of $1.78. Analysts had forecast a loss of 3 cents per share.

Revenue also missed estimates, coming in at $68.1 million versus expectations of $103.5 million.

There were some highlights to the release, however. The Houston-based company said that it had divested certain non-core assets during the quarter, taking in a combined $55.3 million. The company also said that it had reduced its debt by $84.2 million via a discounted repurchase of its senior notes.

Cobalt rebounds

A trader said Cobalt International Energy Inc.’s 2.625% convertible notes due 2019 were “still trading,” but were looking to regain lost territory.

The bonds had fallen on Tuesday in response to a flurry of bad news out about the oil and gas company. Come Wednesday, paper was up about 1.5 points, the trader said, trading around “38 and change.”

“Prints were all over the place yesterday,” he said. Wednesday’s gains were “not unexpected, they went down a lot.”

By the end of the day, the bonds had risen to 38.625, up from 36 previously.

The stock underlying the debt (NYSE: CIE) was also making a comeback, rising 6.1 cents, or 6.23%, to $1.04.

On Tuesday, Cobalt reported a wider net loss of $205.55 million, or 50 cents per share. That compared to a loss of $66.81 million, or 16 cents per share, the year before.

As of June 30, long-term debt was $2.03 billion, while cash and equivalents came to $833.8 million.

However, its cash on hand is likely to be reduced by $250 million, the amount received from Sonangol, Angola’s state oil company, for a planned purchase of Cobalt’s 40% stake in offshore oil blocks in the region. Cobalt said Tuesday that the $1.75 billion sale – first announced in August 2015 – was unlikely to move forward. This adds to Cobalt’s troubles, as it is currently under investigation by the U.S. Department of Justice for its operations in the African state.

The bad news did not stop there, as Cobalt also announced that its Goodfellow #1 exploration well in the Gulf of Mexico – a project started in March that had everyone’s hopes high – was dry.

The company noted that its wider loss was due in part write-off taken because of the dry well.

One final bit of disappointing news was that the company has reduced its workforce by over 60% in the last few months.

Freddie falls

Freddie Mac’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were slightly weaker after the mortgage giant reported earnings on Tuesday.

The preferreds dipped 5 cents, or 1.16%, to $4.25.

For the second quarter, Freddie reported a profit of $993 million – well below the $4.17 billion profit posted a year ago.

Under the government’s 2012 “net worth sweep,” Freddie will pay the entire $993 million back to taxpayers in the form of a dividend payment.

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