Verso Paper bonds ‘hammered’ post-earnings; Samson Resources drops; energy debt largely weaker

By Stephanie N. Rotondo

Phoenix, May 20 – The distressed debt market weakened again Wednesday, even as the latest minutes from the Federal Reserve indicated a June interest rate hike was unlikely.

Though Fed officials largely dismissed weak economic data from the first quarter, very few thought the economy was strong enough to handle a rate increase by next month.

Some Fed officials even indicated that an increase would not be appropriate until 2016.

Of the day’s goings-on, Verso Paper Corp. saw “quite a bit of activity,” according to a trader. Another trader said the papermaker’s debt “got hammered” following an earnings call held on Tuesday.

Samson Resources Corp. was also getting beaten down during the session. The oil producer reported its earnings on Friday, but held a conference call to discuss those results early Wednesday.

Elsewhere in the commodity space, a trader said “coal bonds continued to get hit,” as prices for coal remained under pressure.

Verso smacked down

A trader said Verso Paper bonds were trading busily in midweek trading.

He saw “almost $50 million” of the 11¾% notes due 2019 falling 5 points to 76 5/8.

Another trader said the name was “definitely weaker,” seeing the first-lien notes trading in the mid-70s. That was down from previous levels around 82, he said, a loss of 7 to 8 points.

Memphis-based Verso reported its first-quarter results on Friday and held a conference call on Tuesday. A trader opined that the bonds were dropping in response to what was said during that call.

For the quarter ended March 31, Verso saw its net sales nearly triple to $806 million from $299 million the year before. The gain was due in large part to the company’s takeover of sector peer NewPage.

But the NewPage acquisition also resulted in special items totaling $42 million that weighed on the bottom line. As such, net loss grew to $122 million from $91 million.

Interest expense was also higher, nearly doubling to $66 million from $34 million.

Samson trades lower

Like Verso, Samson Resources published its earnings on Friday, but waited until Wednesday to hold its quarterly conference call.

On the heels of the call, the Tulsa-based oil producer’s debt was declining.

A trader called the 9¾% notes due 2020 off “2 and change points” to 8 5/8. Another trader said the issue closed around 8, down from a 10 to 11 context previously.

For the first quarter of 2015, Samson reported revenues of $206.17 million, down from $250.93 million the year before.

Total operating expenses surged to over $900 million from $231.79 million. The increase was largely due to a $629.51 million impairment charge related to the company’s oil and gas properties.

Net loss was also sizably higher at $490.33 million. That compared to a loss of $1.02 million the previous year.

In its 10-Q, Samson noted that it had historically funded its operations via cash flows. But as the oil and gas markets experienced weakness in the early part of the first quarter, cash flow dwindled. That in turn caused the company to come close to breaching covenants on its various financing instruments.

“Collectively, the negative impacts to our liquidity resulting from declining industry conditions and increased uncertainty regarding our ability to comply with restrictive covenants contained in our credit facilities raises substantial doubt about our ability to continue as a going concern,” the company said in the regulatory filing.

Though the company has begun to implement a plan to improve its position – via asset sales and reducing capex, among other things – a bankruptcy filing could be in the offing, according to the filing.

SandRidge, Midstates dip

Other distressed oil and gas names continued to experience weakness in midweek trading.

SandRidge Energy Inc. was among the day’s losers, according to market sources.

At one desk, the 7½% notes due 2021 were seen at 62 3/8, down just under half a point on the day. The 7½% notes due 2023 were down “almost 2 points” at 60¾, while the 8 1/8% notes due 2022 dropped 1¾ points to 62.

A second source pegged the 2021 paper at 62½ bid, off 3 points.

Midstates Petroleum Co. Inc. also remained soft, as a trader deemed the 9¼% notes due 2021 down a deuce at 46¼.

Another trader said the issue was “down a couple more,” seeing the paper around 46.

Coal sector sputters

Continued pressure on thermal and metallurgical coal prices did not bode well for coal producer debt.

One trader saw Alpha Natural Resources Inc.’s 6¼% notes due 2021 falling over a point to 13¼. The 6% notes due 2019 ended at 13¼ as well, which was down a point.

The trader also saw Peabody Energy Corp.’s 10% notes due 2022 decline over 2 points to 76¾.

A second trader pegged Alpha Natural’s 6¼% notes around 13½ and Peabody’s second-liens at 77½.

A third source called Alpha Natural’s 6¼% notes over a point weaker at 14 bid. Peabody’s 6½% notes due 2020 were meantime placed at 52½ bid, down almost 2 points.

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