Sabine issues seen higher after Chapter 11 filing; Walter also files but is little moved

By Paul Deckelman

New York, July 15 – A pair of bankruptcies in the energy and natural resources space were the big news in the distressed-debt market on Wednesday – but only one of them generated significant trading activity.

Market sources said that Sabine Oil & Gas Corp.’s battered bonds firmed a little, with at least one issue seeing sizable volume, following the news of the company’s Chapter 11 filing.

However, they did not see very much trading in the bonds of Walter Energy Inc. after the metallurgical coal producer also filed for protection from its bondholders and other creditors.

Walter’s sector peer Peabody Energy Corp.’s bonds continued to lose ground, as the company announced when it would release its quarterly earnings results.

Traders did not see much happening in the oil and gas space other than the Sabine Oil bankruptcy.

But they did see a fair amount of activity in offshore drillers Transocean Inc. and Vantage Drilling Co.

Nortel Networks Corp.’s notes continued to firm, though on no real news.

Sabine paper up after filing

A trader saw Sabine Oil & Gas’ 7¼% notes due 2019 – originally issued by Forest Oil Corp., which merged with and into Sabine last year – “up a couple of points,” trading at 22½ bid, with over $24 million of the notes having traded.

He attributed the rise to the fact that following the Houston-based exploration and production company’s Chapter 11 filing with the U.S. Bankruptcy Court for the Southern District of New York, its bonds are now trading flat, or without their accrued interest, resulting in an increase in the bonds’ nominal price.

Another trader also saw the bonds at 22½, versus the 19-to-20 level before the filing, calling them up 1 to 1½ points.

At another desk, a market source said that about $32 million of the company’s paper had changed hands during the session, with the 7¼% 2019 notes “the most liquid,” seeing them moving within a 2-point range between 20¾ and 22¾ bid, with the last trades of the day between 22½ and 22¾ bid.

He said that there were no prints on Tuesday to compare those levels to, but “the bonds have been trading with a 21 handle since the beginning of July, so they moved up a little bit” to 22¾.

The Sabine 7¼% notes “were certainly a little more active” on the news of the company’s bankruptcy, but were still trading in a lower-20s context, “kind of where they had been.”

He suggested that Sabine’s filing had been largely expected.

The first trader said the 2019s were the most active issue in the company’s capital structure, seeing Sabine’s 7½% notes due 2020 racking up just $3 million of volume. Those notes “were in the same vicinity” as the 7¼s, with larger-sized trades around 22½. He said that normally the 7½s “don’t trade very much.”

Sabine’s 9¾% notes due 2017 – issued back when the company was known as NFR Energy LLC – were “also not a very active trader,” with about $8 million having changed hands on the day. They were going home at around 17¾ bid, “also up a couple of points.”

A second trader saw those bonds “a little higher price-wise,” attributing the nominal gain in the bonds’ price to their now trading flat.

Not much else was going on in the sector, one of the traders said, noting that when he did a search for oil-related names, “Sabine was the one with most of the activity today, since it moved a couple of points and had some decent-sized trading.”

Walter Energy little moved

Also on the bankruptcy front, a trader said that Walter Energy’s 9½% first-lien notes were seen between 51½ and 53 bid, which he called “pretty much unchanged.”

He said the company’s unsecured paper was in a 1-to-3 bid context, “so there was no change from yesterday [Tuesday].”

Walter Energy, a second market participant declared, “has not traded today.”

At another desk, a trader opined that “Walter [filing for bankruptcy] had been widely expected, so there was nothing surprising there; there was really no volume. That one has been well-telegraphed.”

“No surprise.”

The Birmingham, Ala.-based producer of metallurgical coal filed for Chapter 11 protection with the U.S. Bankruptcy Court for the Northern District of Alabama in order to implement an agreement with some of its senior lenders on the key terms of a restructuring, according to a news release.

Peabody punished again

A trader said that Walter Energy sector peer Peabody Energy’s 10% second-lien notes due 2022 were trading at bid levels between 53 and 54, but on “not a lot of volume,” with only about $3 million having moved around.

He said the last levels are around 53¾, calling them about unchanged.

He said that about $6 million of Peabody’s 6¼% notes due 2025 traded between 27¼ and 27¾ on the bid side, finishing at 27 1/8, which he said again was “pretty much unchanged.”

A second trader said that “BTU continued to drift lower, pegging the 10s, in a 53-54 context, while the St. Louis-based coal company’s 6% notes due 2018 “were pretty active,” trading down to 37 bid.

A second trader, also seeing the 6s at 37 bid, said that the notes were off by 1¼ points on brisk volume of more than $17 million.

On Wednesday, Peabody announced that it will release its financial results for the 2015 fiscal second quarter ended June 30 on July 28.

On June 30, Peabody had warned investors that adjusted EBITDA for the quarter would be weaker, and the per-share loss wider, than the company’s previously announced guidance.

Transocean, Vantage active

Also in the energy sphere, a trader noted a fair amount of action on Wednesday in Transocean’s bonds, noting some of the Vernier, Switzerland-based international offshore energy drilling company’s bonds were trading in the 70s, while others were up over par.

“They have a lot of issues,” he said.

He said that over $20 million of its 6.8% notes due 2038 changed hands on Wednesday, ending in a 72½-to-73 bid context. He said that at 72½ bid “they’d be pretty much unchanged, and at 73, they’d be up a little.”

So there was “not much [price movement] – but decent size traded.”

At another desk, a trader saw RIG’s 6 3/8% notes due 2021 trading around 88-to-88¼ bid, versus a range of 88½ to 89½ on Tuesday.

However, he still called the credit “relatively unchanged,” with no fresh news out that might explain the increased activity level.

Its 6 7/8% notes due 2021 gained 1/8 point to end at 88½ bid on volume of more than $18 million.

Another offshore energy driller – Houston-based Vantage Drilling Co.’s 7½% notes due 2019 – gained 1¼ points to end at 55¼ bid on volume of over $15 million.

Nortel continues gains

Away from energy and natural resources names, a trader said that Nortel Networks paper “keeps inching up,” with the 10 1/8% notes that were to have come due two years ago in mid-July of 2013 and the 10¾% notes due 2016 both seen trading with a 92ish handle.

“They definitely keep creeping higher,” although he said he did not see any particular new news out about the company, a Mississauga, Ont.-based telecommunications and data network equipment manufacturer currently in the process of liquidating its operations via the bankruptcy courts in the United States and Canada.

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