Midstates issues liquidity warning, bonds decline; Sabine slides as advisors hired; Alliance firms

By Stephanie N. Rotondo

Phoenix, March 16 – Distressed bonds were weaker Monday, dragged down in part by declining oil prices.

Oil was “testing new lows” during the session, according to a trader, as the Federal Reserve indicated that production levels wouldn’t be stemmed in the near term, even as many oil producers have cut their drilling programs.

West Texas Intermediate crude fell $1.06, or 2.36%, to $43.78 a barrel. Brent crude declined $1.23, or 2.25%, to $53.44.

In the oil and gas space, Midstates Petroleum Co. Inc.’s debt was being pressured after the company said it would not have enough cash or credit to deal with its debt obligations in the next year.

That announcement was made in tandem with the company’s latest earnings release.

Meanwhile, Sabine Oil & Gas Corp. was the day’s biggest loser, as the company said it had hired advisors and that it was delaying the filing of its latest quarterly results.

Away from the energy arena, Alliance One International Inc. was trending higher on the day, despite getting downgraded by Standard & Poor’s.

Midstates dips on liquidity concerns

In its earnings release on Monday, Houston-based Midstates Petroleum said that its liquidity would not be enough to handle its debt payments for the next 12 months.

The company said that as such, it was working with its banking group in an effort to come up with a plan.

The company had previously announced that it had hired Evercore and Kirkland & Ellis to review its options in terms of adding liquidity and strengthening its balance sheet.

On the news, a trader saw the 10¾% notes due 2020 falling over 2 points to 56¼.

As of Dec. 31, Midstates had about $101 million in liquidity, consisting of $90 million under a revolving credit facility and $11 million in cash. The company is scheduled to pay about $130 million in interest payments alone this year.

Midstates also noted that it was in danger of breaching certain covenants.

For the fourth quarter, the company reported adjusted net income of $12.7 million, or 19 cents per share. That was up from income of $5 million, or 8 cents per share the year before.

Adjusted net income for the full year was $53.5 million.

Sabine hires advisors

Sabine Oil and Gas bonds dropped as much as 9 points on the day, according to a trader, as the company delayed filing its 10-K.

The company also said that it had retained Lazard Ltd. and Kirkland & Ellis to review its options.

The trader said the 8% notes declined to 16 from 24, while the 9¾% notes fell 9 points to 16¾.

The 7½% notes due 2020 slipped just half a point, he said, to 17½.

The company’s current struggle comes after a merger with Forest Oil Corp. in May 2014 that was expected to increase financial flexibility. But as commodity prices pulled back precipitously, all gains expected from that combination vanished.

The merger wrapped in December.

Sabine said that it expects to file its latest financial results by March 31. However, it does not intend to hold a quarterly conference call.

Alliance downgraded

Tobacco leaf distributer Alliance One International received a downgrade from S&P on Monday.

However, its bonds closed with a firmer feel.

One trader said the 9 7/8% notes due 2021 rose half a point to 84¼. A second trader placed the issue at 83¾ bid, 84¼ offered, up a point on the day.

S&P cut its corporate credit rating on Alliance to B- from B. The rating on the senior second-lien notes was lowered to CCC+ from B-.

The rating agency cited the company’s recent results, which were “weaker-than-expected.” While the agency does see some improvement in the current quarter, it does not believe it will be enough to meet previous forecasts.

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