Greek drama weighs on distressed debt; CalRes falls on short-seller report; Peabody stays soft

By Stephanie N. Rotondo

Phoenix, June 26 – The distressed debt market weakened going into the weekend, as a debt deal in Greece remained elusive.

It was reported that Greek Prime Minister Alexis Tsipras called an urgent cabinet meeting for Friday evening to discuss a bailout deal.

California Resources Corp.’s bonds were “active and topical,” a trader said, after short-seller BlueMountain Capital Management LLC deemed the company’s equity as worthless and said the debt would need to be restructured.

The bonds came in “a few points” on the report.

Meanwhile, coal producer Peabody Energy Corp. was weaker yet again on Friday. The name was likely not helped by word of a rating downgrade.

Also in the energy space, Energy Future Holdings Corp.’s Texas Competitive Electric Holdings Co. LLC-linked notes were unchanged to softer following news the bankrupt company had scrapped a plan to auction off its Oncor Electric unit.

CalRes comes up short

CalRes bonds came in after short-seller BlueMountain issued a negative report on the Los Angeles-based company.

A trader said the 6% notes due 2024 fell “a few points” to 88.

“Prior to the negative report, they were around 91,” he said.

The company’s equity (NYSE: CRC) was also getting hit, falling 41 cents, or 5.73%, to $6.75.

In its report – which was published Thursday – BlueMoutain said CalRes was dealing with high overhead and shrinking output. As such, there is not enough to cover the company’s debt obligations, the firm said.

“We believe that the company’s common stock is worthless and that its bonds are worth around 23 cents on the dollar taking into account coupons and ultimate recovery upon default,” BlueMountain said in the report.

So far this year, CalRes has cut its capital expenditure budget by 80% and closed almost 90% of its drilling rigs as oil prices declined.

On March 25, company executives at the Scotia Howard Weil 43rd Annual Energy Conference in New Orleans said that a review of options was under way as the company looked to spin off debt. The options included joint venture agreements and/or asset sales.

That announcement came just days after Moody’s Investors Service downgraded the company to Ba2 from Ba1, citing high leverage and a drop in oil prices.

As of the end of 2014, CalRes had about $6.4 billion in debt – including a $5 billion three-tranched high-yield bond issue that priced Sept. 11, 2014.

Peabody downgraded

Peabody debt continued to deteriorate Friday after Moody’s downgraded the company to B3 from B2.

The rating agency also cut its ratings on the company’s various debt instruments.

A trader said the 6% notes due 2018 “cracked through 50,” closing in a 49 to 49½ area. The 10% notes due 2022 drifted to a 62 to 63 context.

Another market source pegged the 6 ½% notes due 2020 at 37 bid, off a point.

Moody’s said its decision to alter the St. Louis-based company’s ratings was because of weakening credit metrics, coupled with an ongoing price decline in metallurgical coal.

On Wednesday, a California legislative committee approved a bill that would require state pension funds to divest themselves of any coal investments.

Furthermore, it was also reported on Wednesday that Peabody’s equity (was to be dropped from the S&P 400 MidCap index on Tuesday. The delisting comes after the stock was taken off the board of the S&P 500 index in September.

TXU scraps Oncor auction

Energy Future Holdings – the bankrupt power producer formally known as TXU Corp. – said late Thursday that it was nixing a plan to auction off its Oncor Energy unit.

Come Friday, the company’s debt was unchanged to softer.

A market source placed the 10¼% notes due Nov. 1 from Texas Competitive Electric at 11¼, down about a point on the day. The 15% notes due 2021 were about unchanged, trading around 12½.

In an internal memo out Thursday – and obtained by Reuters – the company said it would instead pursue a standalone reorganization. The decision to do so will push the company’s bankruptcy exit to mid-2016.

TXU filed for Chapter 11 protections in April 2014.

Initially, the company planned to split itself into two pieces: a regulated and an unregulated side. But in April, three alternatives were put on the table: an auction, an equity investment to raise cash for creditors or a standalone reorganization.

A hearing on a new exit plan is slated for January 2016.

MolyCorp quoted lower

Among other bankrupt companies, a trader said there was “not a lot of trading” in MolyCorp Inc. paper, though he noted that the debt was “quoted lower.”

He said the 10% notes due 2020 were being quoted in the high-20s, adding that “the converts are getting pummeled.”

The company filed for Chapter 11 protections on Thursday in order to implement a restructuring support agreement the company inked with holders of its 10% senior secured notes due 2020.

Under the terms of the restructuring agreement, the 10% noteholders will receive 100% of the new equity in the reorganized company. Holders of 2016, 2017 and 2018 convertible paper will have the right to participate in a rights offering for additional stock, provided the combined class agrees to support the reorganization plan.

Should those holders agree to the plan, any proceeds raised in the rights offering will be used to reduce the size of the company’s exit facility. If that facility is reduced to zero, the funds will be used to pay down any debtor-in-possession debt.

MolyCorp is a rare earth minerals mining company based in Greenwood Village, Colo.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.