Crude oil decline weighs on distressed bonds; Alpha Natural files for bankruptcy; Sears rises

By Stephanie N. Rotondo

Phoenix, Aug. 3 – Another decline in oil prices put pressure on the distressed debt market on Monday, the first trading day of August.

West Texas Intermediate crude fell $1.70, or 3.61%, to $45.42 a barrel, as concerns about oversupply continued to grow. Those concerns have been fueled recently by increasing domestic rig counts.

On the heels of the decline, oil exploration and development bonds were getting whacked.

A trader saw Denbury Resources Inc.’s 5½% notes due 2022 fall almost a point to 76½. Comstock Resources Inc.’s 10% notes due 2020 were meantime off 3 points at 86 on “pretty heavy volume,” the trader said.

In California Resources Corp.’s 6% notes due 2024, a trader saw that issue slipping almost 1½ points to 78 3/8.

That trader also placed SandRidge Energy Inc.’s 8¾% notes due 2020 at 75¾, a loss of 3½ points on the day. A second market source pegged the 7½% notes due 2021 at 29, off 1½ points.

Linn Energy LLC was meantime weakening yet again, as a trader saw the 7¾% notes due 2021 falling almost 3 points to 56.

That level was echoed at another desk.

Another loser of the day, Halcon Resources Corp. saw its 9¾% notes due 2020 drop 2½ points to end at 51¾.

And, rounding out the sector, MidStates Petroleum Co. Inc.’s 10% notes due 2020 fell 2½ points to 86½, while the 10¾% notes due 2020 drifted down almost 2 points to 33¼.

Alpha Natural files

In other commodities, coal producer Alpha Natural Resources Inc. saw its bonds improving after the company announced it had filed for bankruptcy.

The news, a trader noted, was not “earth-shattering.

“I don’t think it’s any surprise,” he said, seeing the company’s unsecured issues trading in a 3 to 4 context.

Another trader deemed the 6¼% notes due 2021 up “maybe a quarter [point]” at 3 5/8. He also saw the 9¾% notes due 2018 rising a point to 4.

At another shop, the 6¼% notes were pegged at 3¾ bid, up a quarter-point.

Weakening metallurgical coal prices and softening demand have brought several coal companies down this year. Alpha Natural will join sector peers Walter Energy Inc., Patriot Coal Corp. and James River Coal Co. under bankruptcy protections.

However, Alpha filed for Chapter 11 without a restructuring plan in hand. The company said that it does not want to simply sell itself – especially in the current low-price environment – but did note that certain asset sales might be done.

Some assets also could be turned over to creditors.

Sears commences tender offer

A trader said Sears Holdings Corp.’s 6 5/8% notes due 2018 were “up a few points” after the Hoffman Estates, Ill.-based retailer announced a tender offer.

He placed the issue at 99¼.

Another trader pegged the debt at 99½.

Under the terms of the offer, Sears will take in up to $1 billion of the $1.24 billion in notes via the tender. Holders who participate will receive $990 per each $1,000 of notes, which includes an extra $30 if tendered by the early deadline.

The tender announcement was part of the company’s second-quarter results, in which Sears said it expects to post a profit – its first since 2012.

Abengoa slides

Abengoa SA’s 7¾% notes due 2020 ended Monday’s session considerably weaker, according to a trader.

The trader said the debt dropped 10 points to 68½.

The slide came as it was reported that the company’s capital plan failed to encourage investors.

On Monday, Abengoa – a Seville, Spain-based renewable energy company – said it wanted to raise €650 million of new capital. Additionally, it wants to divest itself of about €500 million in assets.

The latter figure was up from those presented on Friday during an earnings conference call. Participants in that call also learned that the company’s free cash flow would be about €800 million lower than previously forecast.

Puerto Rico misses payment

Puerto Rico missed a debt service payment for the Puerto Rico Public Finance Corp. over the weekend, marking the first time the island commonwealth has ever defaulted on its debt.

The commonwealth’s legislature had been scheduled to make the payment on Saturday, but the legislature did not appropriate the funds in the current fiscal year budget. This could mark the first of many defaults for Puerto Rico.

The island’s economy has been suffering for quite some time. According to the June Economic Activity Index, the commonwealth’s index declined 0.4% compared to June 2014 and 1.6% for fiscal year 2015 compared to fiscal year 2014.

On Monday, the commonwealth’s series 2012 general obligation bonds were actively traded. The 5% 2041s opened the session at 59.65 with a 9.066% yield-to-maturity. By 2 p.m. ET, the bonds were trading at 58 with a 9.323% yield-to-maturity. The bonds ended the day at 57.776, a 9.358% yield-to-maturity.

Sheri Kasprzak contributed to this article

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