SandRidge rebounds, but trouble remains; MolyCorp weaker after downgrade; LightSquared tweaked

By Stephanie N. Rotondo

Phoenix, June 2 – The distressed oil and gas sector remained in focus on Tuesday, upstaged only by new high-yield issues.

Specifically, a trader said Petroleo Brasileiro SA – or Petrobras, as it is more commonly referred to – and its new $2.5 billion of 6.85% notes due 2115 were front and center.

The trader said over $360 million of the notes were exchanged during the session, accounting for over 10% of all high-yield trading.

The issue priced Monday at 81.07 with an 8.45% yield.

Back in the distressed realm, SandRidge Energy Inc. bonds continued to be active. But after several sessions of losses, the debt managed to end with a firmer tone.

“I guess they found a little bit of a base,” a trader said.

MolyCorp Inc. was meantime weaker as Standard & Poor’s declared the company’s recently missed coupon payment a default.

Also in ratings news, a trader said there was “no real reaction” in MagnaChip Semiconductor Corp.’s 6 5/8% notes due 2021 after Moody’s Investors Service downgraded the company and the notes to Caa2 from Caa1.

“I think the market is just shrugging it off,” he said.

Trouble with SandRidge

After a recent episode of losses, SandRidge bonds looked to be up today.

There didn't appear to be a specific reason for the gains, though one trader pointed to oil price gains.

That trader saw the 7½% notes due 2021 “up a couple points” at 56¼, while the 7½% notes due 2023 rose over 3 points to 55¾.

Another trader placed both the 2021 and 2023 bonds around 55, up from a 52 to 53 context previously.

As for the company’s recently priced 8¾% senior secured second-lien notes due 2020, a trader quoted that issue at 98 3/8 bid, 98¾ offered.

The $1.25 billion issue came Thursday and was part of the Oklahoma City-based company’s plan to improve liquidity.

However, the market has seemed less than enthused about the transactions.

One trader noted that the recent liquidity transactions "just layered all the unsecured bonds" with secured debt. "It provides liquidity, but unless the landscape changes, it's not necessarily a good thing."

Another trader opined that “they pushed the price, upsized the deal – and stopped supporting it around 98½.”

He also said that there was “lots of fast money in it who had been hyping the deal to others for 24 hours pre-pricing, saying it will be a blowout, make some quick money.”

Yet another trader said he didn’t know why the new SandRidge bonds were getting killed, but noted that with the existing bonds already trading at deeply distressed levels even before this new deal, “I don’t know if there was a lot of enthusiasm behind the credit.”

Prior to the new issue, SandRidge was already laboring under high debt levels, though proceeds from the deal were slated to pay down a revolving credit facility, that does very little to combat a significant cash burn, modestly lower production – at least in the first quarter – and volatile oil prices.

As for the latter issue, there could be some positive headwinds getting ready to blow, what with OPEC slated to meet to discuss its production policy on Friday and with expectations that U.S. stockpiles will continue to decline amid lower domestic production.

For its part, West Texas Intermediate crude rose to the highest levels seen since December, gaining $1.13, or 1.88%, to $61.33 per barrel.

Brent crude improved 74 cents, or 1.14%, to $65.62.

S&P claims MolyCorp default

S&P cut MolyCorp’s rating to D from CCC+ on Tuesday, after the company missed a $32.5 million interest payment on its 10% notes due 2020 on Monday.

The bonds are currently trading flat, or without accrued interest.

One trader said the debt dropped 4 points on the downgrade news, ending at 40¼. A second trader deemed the notes “lower,” trading around 40.

As previously reported, the Greenwood Village, Colo.-based company has engaged advisors to help it restructure its debt. In early May, senior creditors submitted a restructuring proposal to the company that would have swapped some or all of the 10% notes for equity.

LightSquared tweaks loan

LightSquared cut its five-year first-lien term loan to $1.5 billion from $1.75 billion and left pricing at Libor plus 875 bps PIK with a 1% Libor floor and an original issue discount of 97, according to a market source.

As before, the loan is non-callable for two years, then at 104 in year three and 102 in year four, and has a ticking fee of 1% for the first 90 days, 1.5% for days 91 to 120, 2.5% for days 121 to 150 and 3% thereafter.

Previously in syndication, pricing on the term loan was raised from Libor plus 775 bps PIK, the call protection was sweetened from non-callable for one year, then at 102 in year two and 101 in year three, and the ticking fee was changed from 1% for the first 120 days and 2% after 120 days.

Credit Suisse Securities (USA) LLC, Jefferies Finance LLC and Morgan Stanley Senior Funding Inc. are leading the deal that will be used to fund the company’s exit from Chapter 11 and refinance debtor-in-possession facilities.

LightSquared is a Reston, Va.-based wireless communications company.

Sara Rosenberg and Paul Deckelman contributed to this article

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