Oil and gas, coal bonds weaken as oil price drops; Colt Defense debt volatile as coupon looms

By Stephanie N. Rotondo

Phoenix, Nov. 13 – The distressed debt market was again focusing on the oil and gas arena Thursday, as oil prices declined further.

“It was the same-old-same-olds down with oil down again,” a trader said.

West Texas Intermediate oil prices fell $2.76, or 3.58%, to $74.42 per barrel. Brent crude dropped $2.46, or 3.06%, to $77.92.

Colt Defense LLC meantime dropped and then rebounded as concerns of a default worried investors. Moody’s Investors Service also cut its rating on the company in response to a Form NT 10-Q filing on Wednesday, which stated that net sales could fall about 25% year over year.

In other recently topical names, Caesars Entertainment Corp. was “mildly active,” a trader said, seeing the 10% notes due 2018 rising slightly to 14½. The 10¾% notes due 2016, however, were down a point at 15¼, he said, and the 12¾% notes due 2018 closed up half a point at 17.

Another market source pegged the 10% notes at 14¼ bid, up 1¼ points.

NII Holdings Inc.’s 7 5/8% notes due 2021 were meantime seen a quarter-point weaker at 21¾.

Energy names mostly weaker

As oil prices continued to falter, oil and gas names were under pressure yet again.

Offshore drilling company Hercules Offshore Inc.’s bonds were weaker, a trader said. He saw the 6¾% notes due 2022 ending a point lower at 53½, while the 8¾% notes due 2021 slipped over half a point to 55¾.

In single trades, the 7½% notes due 2021 rose a quarter-point to 56¼, but the 10¼% notes due 2019 dropped over a point to 65½.

Seismic data provider CGG SA meantime saw its 6½% notes due 2021 lose half point, ending around 82. The 6 7/8% notes due 2022 were off nearly that much at 82 5/8.

Independent oil exploration and development company Samson Investments Co.’s 9¾% notes due 2020 declined about 3½ points, a trader said, to 69.

“I thought I saw them even a little weaker than that at the end of the day,” he said.

The oil and gas sector wasn’t the only energy arena losing weight. Coal was also under pressure.

A trader said Arch Coal Inc.’s 7¼% notes due 2021 declined over half a point to 42 and the 9 7/8% notes due 2019 weakened a deuce to 49½.

But the 7¼% notes due 2020 ended up half a point at 52.

Colt could miss coupon

A trader said Colt Defense’s 8¾% notes due 2017 “initially traded into the mid-30s before closing around 44.”

The volatility came as the company warned that it might not be able to make a $10.9 million coupon payment on Monday and that even if it does somehow make the payment – whether on time or within its 30-day grace period – it could then run into issues on a term loan come Dec. 31.

The company said it was in talks with lenders in an attempt to resolve that problem.

The West Hartford, Conn.-based gun maker also said in a regulatory filing on Wednesday that its quarterly earnings would likely show a roughly 25% decline in net sales, as well as an approximately 50% decline in operating income.

Come Thursday, the hits kept coming as Moody’s lowered its credit rating on the company to Caa3 from Caa2.

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