SandRidge bonds slide ahead of secured deal; Caesars busy, higher; Alpha convertibles fall

By Paul Deckelman

New York, May 28 – SandRidge Energy, Inc. was the big name in the distressed-debt realm on Thursday after the oil and natural gas producer announced plans to sell $1 billion of five-year senior secured notes, which would rank above the existing bonds in the company’s capital structure.

Those existing bonds slid multiple points in very active trading.

Also in the energy space, Midstates Petroleum Co.’s notes continued to ease – also on subordination concerns – following last week’s announcement of new debt and other balance-sheet transactions.

Caesars Entertainment Operating Co.’s notes were seen better a day after the bankruptcy court overseeing its restructuring ruled that the troubled Las Vegas-based gaming giant could have additional time to devise a reorganization plan.

Verso Paper Corp. was seen under pressure for a second consecutive session.

In the convertibles market, Alpha Natural Resources Inc.’s paper continued to lose ground, with traders describing a mixture of investor angst about the beleaguered coal space combined with worries over whether the company would be able to make scheduled interest payments that come due next week on two of its straight junk bonds.

New deal knocks SandRidge down

SandRidge’s existing senior unsecured bonds were down across the board on the news of the $1 billion offering of senior secured second-priority notes, which would rank higher in the company’s capital structure than those outstanding bonds.

A trader said that “it was among the most active names today.”

A market source said that SandRidge’s 7½% notes due 2021 saw the most action, with over $49 million traded. He saw the notes down 2 3/8 points on the day, falling to 59¼ bid.

A second trader saw the bonds down more than 2 points, trading in a 59-to-60 context, versus prior levels around 62 bid.

SandRidge’s 7½% notes due 2023 likewise slid some 1¾ points to 58¾ bid, with over $30 million of the notes having changed hands.

A source at another desk called them down 1½ points, trading between 58½ and 59 bid.

Its 8 1/8% notes due 2020 dropped to 58¾ bid, a fall of 2¼ points, on volume of over $14 million.

The company’s 8¾% notes due 2020 were seen off 1¼ points, at 65¾ bid, on volume of more than $10 million.

SandRidge said that it plans to use the proceeds from the new bond deal to repay revolving credit facility borrowings and for general corporate purposes.

Midstates moves lower again

Also among the energy credits, a trader saw continued erosion in Midstates Petroleum’s notes in the wake of new debt and other financial transactions announced late last week.

A trader saw about $5 million of its 9¼% notes due 2021 losing 1½ points on the day to finish at 46½ bid, 47 offered.

He saw the company’s 10¾% notes due 2020 off ¾ point on Thursday to close at 48 bid, 49 offered.

The trader said that the bonds were continuing to gyrate in the wake of transactions announced last week by the Tulsa, Okla.-based exploration and production company to improve its balance sheet and “substantially” augment its liquidity to the tune of about $420 million.

Chief among these was its issuance of $625 million of 10% senior secured second-lien notes. A portion of the net proceeds were used to fully repay borrowings under Midstates’ revolving credit facility, with the remainder held in cash for general corporate purposes.

Midstates also exchanged $279.8 million of the 10¾% notes and $350.3 million of the 9¼% notes for $504.1 million of new third-lien senior secured notes, representing an exchange at 80% of par value. The third-lien notes will pay cash interest of 10% and pay-in-kind interest of 2%.

The trader said that “the problem is they put the senior paper on top” of the existing unsecured bonds, referring to the 10% second-lien notes due 2020 and the 12% third-lien notes due 2020.

He quoted the 10% notes at 101½ bid, 102½ offered, with the 12% notes in an 87-to-90 context, “but the two unsecured tranches are in the high 40s.”

Along with the aforementioned bond transactions, Midstates concurrently said that it had amended its revolving credit facility to provide additional covenant flexibility and allow for the second-lien notes issuance and exchange transactions. Upon completion of the transaction, the company’s borrowing base under its revolving credit facility was reduced to $253 million. The next borrowing base redetermination is scheduled for October.

Caesars up as company gets time

Away from the oil and gas names, Caesars Entertainment’s 10% notes due 2018 were seen up 1¾ points to 25¼ bid, a market source said, seeing more than $12 million of those bonds traded.

He also saw its 11¼% secured notes due 2017 a little firmer on the day at 81 bid, on volume of over $10 million.

Another trader saw the 10% notes up more than 2 points on the day at that 25 bid level.

The bonds rose as investors digested the latest development in the company’s bankruptcy case.

Judge A. Benjamin Goldgar of the U.S. Bankruptcy Court in Chicago announced Wednesday that he was granting the company’s motion to extend until mid-November its exclusive right to put together a plan of reorganization that would cut the gaming operator’s massive debt, allowing it to exit court protection.

Verso stays down

Elsewhere, a trader said that Memphis-based papermaker Verso Paper “remained among the top laggards for a second day in a row.”

He said that its 11¾% first-lien notes due 2019 were unchanged around 72 bid, pointing out that the bonds had undergone “their big drop” on Wednesday, falling to 72 after starting the week in a 74-to-75 bid context.

He said that $10 million to $12 million had changed hands.

“There was definitely some activity there.”

He said that “it’s significant that a first-lien piece of paper is trading down in the 70s.”

The bonds have been trending mostly downward since mid-May, when the company released its quarterly results. The results showed a much wider loss, though that was mainly due to the incorporation of merger partner and former rival NewPage.

ANR easier ahead of deadline

In the convertibles market, a trader said that Alpha Natural Resources’ 3.75% notes due 2017 slumped further to the 18.5 level from previous levels in the low-to-mid 20s as concerns continue to grip the overall coal sector and ahead of a coupon due on Alpha Natural’s straight bonds on Monday.

“I don’t know if there is any fear [related to the coupon],” he said.

“The whole sector is struggling. It’s a one-way trade, and it’s going down.”

Alpha has interest payments coming up on June 1 on its $577 million of outstanding 6% notes due 2019 and on its $585 million of outstanding 6¼% notes due 2021.

The interest payments come to about $17.3 million on the former issue and about $18.3 million on the latter credit.

Both of those bonds are currently trading in a 14-to-15 bid context.

Alpha Natural Resources, a coal producer based in Bristol, Va., priced $350 million of the 3.75% convertibles in May 2013.

Rebecca Melvin contributed to this review

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