Energy names off despite oil-price surge; Samson slides; Fortescue, Cliffs fall, but ANR up

By Paul Deckelman

New York, April 1 – Oil prices surged on Wednesday amid a report indicating a fall in domestic crude oil production and speculation that the Iran nuclear talks with the United States and other major nations aren’t going very well – meaning that country’s oil will remain out of the market for the near future.

But all of that was of little help to what could be considered distressed energy sector bonds, which took it on the chin again, along with natural resources names.

These included independent oil and natural gas exploration and production operator Samson Investment Co., whose bonds slid badly in heavy trading. That drop came against a backdrop of another cut in its credit ratings.

Another company seeing its ratings cut, pushing the bonds lower – though nowhere near the plunge that Samson took – was Pacific Rubiales Energy Corp.

Iron ore producers like Fortescue Metals Group Ltd. and Cliffs Natural Resources Inc. were being beaten up as iron ore prices hit their lowest levels in a decade.

Coal-mining names like Peabody Energy Corp. were also getting buried.

But one coal name that was the exception to the rule on Wednesday was Alpha Natural Resources Inc., on the news that the company had bought back almost $600 million of various junk bond and convertible notes for slightly more than half of that amount.

And from the underperforming retail sector, Sears Holdings Corp.’s bonds were better on the news that the department store chain operator plans to raise capital by selling some of its top properties to an affiliated real-estate trust and leasing them back.

Energy names take a beating

Away from the new deals, a trader said that “it looks like our old favorites, the oil names,” were the dominant feature of Wednesday’s market, mostly trading on the downside.

And no issue traded down as far, or on as much volume, as Samson Investment’s 9¾% notes due 2020.

“That one got ugly pretty quickly,” he said of the Tulsa, Okla.-based energy E&P’s issue, which dropped about 5 points on the session to trade in a 15½-to-17½ bid context.

More than $55 million of the notes were traded.

He noted the fact that as late as last September, “they were still a little above par,” deteriorating badly over the next six months in line with the overall energy sector downturn, spurred by fallen crude prices.

“Aren’t you glad you didn’t invest in that one?” he quipped.

The slide coincided with the news that Standard & Poor’s had cut company parent Samson Resources Corp.’s corporate credit to CCC- from CCC+, dropping its revolving credit facility to CCC+ from B.

Samson Resources’ second-lien debt fell to CCC- from CCC+, while Samson Investments’ unsecured notes were sliced to C from CCC-.

The outlook is negative.

The downgrades reflect a belief that the company could restructure its debt, reorganize under Chapter 11 of the bankruptcy code or miss an interest payment without unanticipated significantly favorable changes in the company’s circumstances, S&P said.

Other oil names were also seen lower on the day, even as world oil prices rebounded; West Texas Intermediate for May delivery gained around $2.50 per barrel to close at $50.09 on the New York Mercantile Exchange, a gain of more than 5%, while Brent crude jumped 3% to $57.10.

Crude prices got a boost from a U.S. government report indicating that domestic output last week had fallen.

The continued failure so far to reach a deal with Iran curtailing its nuclear program – as the March 31st deadline came and went – was also seen as positive for oil prices, since international sanctions on Iran’s oil remain in place for now.

Even so, names such as Linn Energy LLC lost ground; its 6½% notes due 2019 were off by more than 1¼ points at 82¾ bid, on more than $10 million of volume.

Pacific Rubiales under pressure

Among emerging markets energy names, Pacific Rubiales Energy Corp. was in the news after a ratings downgrade and amid continuing rumors about an upcoming meeting with investors.

Standard & Poor’s knocked Pacific Rubiales down to BB/negative from BB+/watch negative.

This development “may have spooked some people, because the bonds got hit immediately on the news, in spite of oil having its strongest day in two months,” a London-based trader said. “Bonds are down anywhere between 50 cents and 1 point.”

Meanwhile, market-watchers were buzzing about a possible investor meeting, during which the Toronto-based company – which explores for and produces oil and gas in Colombia and Peru – could discuss ways to restructure its debt.

“Current oil prices are too low for the company to service its debt,” according to a report from Schildershoven Finance BV.

Pacific Rubiales’ 5 3/8% notes due in 2019 traded at 66 bid, 67 offered after Tuesday’s levels of 66 bid, 67¼ offered.

The 7¼% notes due in 2021 were spotted at 66 bid, 67 offered after Tuesday’s 67¼ bid, 68¾ offered while the 5 1/8% 2023s were seen at 56¼ bid, 57¼ offered after Tuesday’s 57½ bid, 59 offered.

And the 5 5/8% 2025s traded Wednesday at 58 bid, 59 offered after trading Tuesday at 58½ bid, 59½ offered.

This latest news added to the pile for Pacific Rubiales, which recently reported disappointing earnings, suspended dividends and saw its bonds plummet after a contract change with Ecopetrol SA meant other operators would likely run Rubiales Field.

Iron ore credits tumble

Among the iron ore producers, “FMG was getting slaughtered,” a trader said, referring to Australian miner Fortescue Metals Group.

Its 6% notes due 2017 lost 2¼ points to end at 96½ bid, another market source said, counting more than $43 million of the credit having traded.

Its 6 7/8% notes due 2018 were the big losers on the day, dropping some 5½ points to close at 93 bid on turnover of more than $23 million.

The company’s 8¼% notes due 2019 were almost as bad, falling an even 5 points on the day to finish at 80 bid, on volume of over $19 million.

U.S.-based sector peer Cliffs Natural Resources 8¼% notes due 2020 dropped two points to 92 bid on volume of more than $18 million.

The Cleveland-based company’s 5.95% notes due 2018 nosedived by 5½ points to 72½ bid, with over $10 million traded.

The iron ore names were cratering after prices for the commodity fell below $50 per ton, the lowest levels seen in at least a decade.

Coal credits mixed

Cliffs is also active in the coal business, and that sector’s bonds were seen mostly lower amid continued lower coal prices.

St. Louis-based Peabody Energy Corp.’s 10% notes due 2022 were down by some 1¾ points on the day at 86¼ bid, with more than $42 million having traded.

Its 6½% notes due 2020 dropped 1½ points to 59¼ bid, with more than $18 million traded.

But Bristol, Va.-based sector peer Alpha Natural Resources paper jumped, helped by the news that it had bought back nearly $600 million of its junk bonds and convertibles in privately negotiated transactions, for the bargain basement price of $331 million.

ANR’s 6% notes due 2019gained ¾ point to end at 28¾ bid, on over $13 million traded.

Its 6¼% notes due 2021 did even better, rising by 2¼ points to end at 27¾ bid, with over $12 million changing hands.

Sears gains on REIT deal

Away from the energy and resource names, a trader noted that department store retailer Sears’ 6 5/8% notes due 2018 gained more than 2 points on the day to end at 95½ bid.

He cited the news that the cash-strapped Hoffman Estates, Ill.-based company plans to raise more than $2.5 billion by selling 254 properties to an affiliated REIT, most of them occupied by Sears or Kmart stores, and will then lease back those locations to keep the stores operating.

Christine Van Dusen contributed to this review.

© 2015 Prospect News.
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