FMG Resources prices new deal, bonds jump higher; Energy XXI debt weakens; Sabine ends firmer

By Stephanie N. Rotondo

Phoenix, April 22 – Commodity names were eyed in the distressed debt market on Wednesday amid a round of credit-specific news.

FMG Resources was quite active – and quite better – on the day as the company sought to raise money via the high-yield market. The offering marked the second time the company has attempted to tap the markets.

Proceeds from the new deal will be used to take out the 6% notes due 2017 and the 6 7/8% notes due 2018.

Meanwhile, Energy XXI paper finished the session with a weaker tone. The downward move came as the company said at a conference that it was looking into selling midstream and noncore assets to help improve its balance sheet.

The company also said it was considering further bond sales. It sold $1.45 billion of 11% notes due 2020 on March 5.

Also in the oil and gas arena, Sabine Oil & Gas Corp.’s bonds were seen edging higher after the company said it was exercising its 30-day grace period on an interest payment due on a term loan.

One trader speculated that the gains could be due to the bonds trading flat, or without accrued interest, though he was not sure if that was the case.

FMG up on new deal

FMG Resources took a second stab at raising new funds via the high-yield market on Wednesday.

Initially, the Australian iron ore producer was looking to sell $1.5 billion of new seven-year notes. Price talk was 9¾% at 96½, yielding 10½%.

However, the deal was said to be increased to $2.5 billion and talk was revised to 9¾% at 97.608, with a 10¼% yield.

The deal eventually priced at revised talk, but only $2.3 billion of the notes were sold.

With the proceeds, the company intends to redeem its 2017 and 2018 paper.

On the news of the deal and the ensuing redemption, a trader said the company’s debt was “up smartly.”

He saw the 6% notes due 2017 at 103, a gain of nearly 3 points. The 6 7/8% notes due 2018 put on almost 4 points, closing at 103¾.

The trader also saw the 8¼% notes due 2019 rising “almost 5 points” to 88¼, but the 6 7/8% notes due 2022 fell a point to 71.

At another desk, a trader said the name was “pretty active,” seeing both the 2017 and 2018 bonds trading up to 103. He added that the 8 ¼% notes “traded in a wide range” over the course of the day, hitting as high as 88.

That compared to an 82 to 83 context previously.

In mid-March, FMG nixed plans to sell $2.5 billion of senior secured notes, as well as a proposed tender offer for three series of notes: the 2017, 2018 and 2019 maturities.

At that time, the company attributed the cancelled deal to unfavorable market conditions.

Energy XXI pressured

Investors did not appear to be appeased by a presentation made by Energy XXI at the IPAA Oil & Gas Investment Symposium in New York on Wednesday.

One trader said the company’s 11% notes due 2020 fell half a point to 95, while the 8 ¼% notes due 2018 declined “almost 2 points” to 78.

Another trader called the 11% notes off “about a point” at 94½. The 8¼% notes were down a similar amount to “78 and change,” he said.

During the presentation, John Schiller, chairman, president and chief executive officer, said there were “alot of things” the company could do to improve its balance sheet. Those things include reducing operating costs, asset sales and more bond issuance.

Schiller alluded to a possible sale of its midstream assets, deeming that a “90% certainty.” Successful sales of other noncore assets, however, were only given a 50/50 chance.

Schiller further indicated that the company would be open to issuing third-lien debt or larger second-lien deals.

FMG was in other headlines on Wednesday, as Standard & Poor’s cut the company’s rating to BB from BB+.

The rating agency said the downgrade reflected concerns that the company’s financial-risk profile would remain under pressure over the next two years as iron prices continue to struggle.

Sabine skips payment

Sabine Oil & Gas skipped a $15.31 million interest payment on a second-lien credit facility on Tuesday.

Come Wednesday, traders saw the company’s debt moving higher.

“It could be because they are trading flat now,” a trader said of the bonds. However, he was not sure if that was actually the case.

The trader saw the 7¼% notes due 2019 trading in a 27½ to 28 zip code, which he deemed up a quarter-point.

Another trader called that issue 1½ points better at 28. The 9¾% notes due 2018 were then seen up a quarter-point at 15¼.

Upon skipping the payment, Sabine now has 30 days pony up or else find itself in default.

As previously reported, the company has sought advice from financial and legal experts in regards to its strategic alternatives.

Following the news, S&P responded by dropping the company’s rating to D.

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