Oil and gas bonds drop with crude as Goldman sees prices at $45 by fall; Colt tender extended

By Stephanie N. Rotondo

Phoenix, May 19 – Distressed oil and gas names were pressured Tuesday, along with crude oil prices.

The declines came as Goldman Sachs analysts speculated that crude prices could drop back down to $45 a barrel by October, citing increased production by OPEC producers like Saudi Arabia and Iraq.

West Texas Intermediate crude declined $2.17, or 3.65%, to $57.26 per barrel, while Brent crude dropped $2.08, or 3.14%, to $64.19.

In the oil and gas space, a trader said Sabine Oil & Gas Corp.’s 9¾% notes due 2017 slipped a quarter-point to 19. Comstock Resources Inc.’s 7¾% notes due 2019 were meantime off half a point a 53¼.

SandRidge Energy Inc. and Energy XXI also continued to see a fair bit of weakness in their debt, according to the trader.

SandRidge’s 7½% notes due 2023 ended just slightly lower at 62 5/8, the trader said. But the 7½% notes due 2021 dropped over 2½ points to 62¾.

In Energy XXI paper, the 9¼% notes due 2017 were seen off “about 2 points” at 66 3/8, while the 8¼% notes due 2018 lost 2½ points to 69.

But it was Midstates Petroleum Co. Inc. bonds that really took a hit.

A trader was unsure why the debt was hit so hard, remarking that the comments made by Goldman probably would not have resulted in such high losses.

He saw the 10¾% notes due 2017 losing nearly 6 points on the day to close around 47. The 9¼% notes due 2021 were down a like amount at 48.

Colt tender extended again

Colt Defense LLC yet again extended an exchange offer for its 8¾% notes due 2017, as the tender has garnered limited support.

Still, trading in the debt was “pretty quiet,” a trader said.

Another trader said the bonds were “not really any different, maybe even a touch better” at 28 bid, 30 offered.

In mid-April, the West Hartford, Conn.-based gun maker announced the tender for the 8¾% notes, offering holders $350 of new 10% junior priority senior secured notes due Nov. 15, 2023 in exchange for each $1,000 of notes tendered. In addition to the tender offer, the company was also soliciting votes on a consent solicitation on a pre-packaged bankruptcy filing – just in case the tender did not reach its minimum requirements.

Last week, Colt said that it had received just 5.1% of the outstanding principal amount, resulting in the first extension of the offer. On Monday, the company said the amount of notes tendered had risen to just 5.65%.

That prompted the second extension, this time to 5 p.m. ET on May 26.

Colt has also entered a default period, as it failed to make a $10.9 million interest payment on Friday.

Citing the missed payment, Standard & Poor’s took negative action on the company’s credit rating on Tuesday.

The rating agency dropped Colt’s corporate credit rating to D from CC. S&P also stated that it did not believe the company would make the interest payment within the 30-day grace period.

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