Linn Energy up as company delevers; Key Energy sees wider loss, bonds fall; Arch limps along

By Stephanie N. Rotondo

Phoenix, July 30 – The distressed commodity space was jumping around Thursday on a slew of fresh earnings.

Lots of ups today,” a trader said.

In the oil and gas space, Linn Energy LLC debt jumped 4 to 7 points on its earnings announcement. In the release, the Houston-based company also said that it was suspending its equity dividend and that it had repurchased about $599 million of senior notes at a 35% discount.

Key Energy Services Inc. also posted numbers, showing a wider loss and weaker revenues. As a result, those bonds took a nearly 5-point hit on the day.

In the coal arena, Arch Coal Inc. came out with its earnings, also reporting a wider loss. But a trader noted that activity in the name was thin, attributing the lack of volume to a debt exchange that is currently being disputed.

Away from commodities, Getty Images Inc.’s 7% notes due 2020 improved, which a trader said was due to earnings.

The figures are not available to the public.

The trader said the debt was “up as much as 10 [points] but closed off the highs.” They ended up about 5 points, he said.

Another trader called the issue up 4½ points at 42½.

Linn debt jumps up

A trader said Linn Energy bonds were “soaring right out of the gate” as the company reported its latest quarterly results.

The trader saw the 8 5/8% notes due 2020 rising over 4 points to 65, while the 7¾% notes due 2021 gained nearly 6 points to 63¼. The 6¼% notes due 2019 popped “almost 7 [points]” to 65.

A second market source pegged the 7¾% notes at 64 bid, up over 6 points.

For the second quarter, Linn posted a net loss of $379 million, or $1.12 per unit. That compared to a net loss of $208 million, or 64 cents per unit, the year before.

The wider loss was attributed to non-cash losses related to changes in fair value of unsettled commodity derivatives of about $455 million, or $1.33 per unit.

Revenue was $322 million.

The results also showed that average daily production increased 1.5%. On the heels of that, the company increased its full-year production guidance by 4%.

The earnings release also included the announcement that the company would suspend its dividend, resulting in annual savings of about $450 million.

Linn also said it had reduced its debt load by buying back about $599 million of senior notes during the quarter. For the year thus far, the company has repurchased about $783 million of senior debt, resulting in annualized interest cost savings of about $54 million.

Key Energy bonds drop

Key Energy Services, a Houston-based rig-based well servicing provider, also had earnings out.

Like Linn, the company reported a wider loss, but its bonds did not react as well.

A trader said the 6¾% notes due 2021 dropped “almost 5 [points]” to 51.

For the three months ended June 30, Key’s net loss widened to $65.4 million from $52.2 million the year before. Loss per share was 42 cents, versus 34 cents for the same quarter of 2014.

Adjusted EBITDA turned negative at $8.6 million. That compared to positive EBITDA of $33.6 million.

Revenue nearly halved, falling to $197.5 million from $350.6 million.

Arch numbers disappoint

Ongoing weakness in the coal markets resulted in a wider quarterly loss for Arch Coal, the company reported Thursday.

But a dispute with creditors over a debt exchange was likely having a larger impact on the company’s debt, a trader said.

“Until there is some clarity on the exchange that is being fought over. I don't think you will see a lot of volume” in the bonds, he said.

On July 2, Arch announced a debt exchange aimed at helping it delever its balance sheet and improve it bottom line. Earlier this week, however, two groups of first-lien lenders sought to block the exchange, asserting that, among other things, a proposed amendment to a revolving credit facility needed to be approved by all lenders.

Arch has said the claims are without merit and that the amendment needs only the consents of lenders participating in that particular credit line.

Still, a trader saw the 7¼% notes due 2021 falling 1½ points to 11½.

As for the St. Louis-based coal producer’s quarterly earnings, net loss increased to $168.1 million, versus about $97 million the year before. Loss per share was 79 cents – 73 cents on an adjusted basis.

Analysts polled by Zacks Investment Research had forecast a loss of 59 cents per share.

Revenue also came in below expectations at $644.5 million. Analysts had predicted $654.3 million.

Peabody strong again

Elsewhere in the coal space, Peabody Energy Corp. remained firm, with one trader calling the company’s debt up “another 1 to 2 points post-numbers.”

Peabody reported a $1 billion loss on Tuesday, but noted that it had liquidity of over $2 billion.

The 4.75% convertible notes due 2066 were ticking higher, according to a trader

He quoted the issue at 11.25 bid, 11.5 offered, up from 10.75 previously.

The stock also traded higher, moving up 4 cents, or 3.28%, to $1.26.

As for the straight bonds, a trader saw the 6¼% notes due 2021 rising 2½ points to 28¼. The trader also placed the 6½% notes due 2020 at that level, calling the issue up nearly 2 points.

The 6% notes due 2018 were meantime up 1½ points at 36½, the trader said.

At another desk, the 6½% notes were seen at 29 bid, up 2½ points.

The upward momentum came despite reports that sector peer Alpha Natural Resources Inc. – which has a 3.25% convertible bond issue maturing on Saturday – was preparing to file for bankruptcy as soon as Monday.

One trader said that Alpha’s potential filing was “not a big surprise.” There has been chatter for weeks that such a thing was on the horizon.

As metallurgical coal prices have weakened, coal producers have felt the pain. In the last 15 months, Patriot Coal Corp. Walter Energy Inc. and James River Coal Co. have all sought Chapter 11 protections.

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