China devalues yuan, oil prices slide; oil and gas debt beaten down; Verso Paper up on numbers

By Stephanie N. Rotondo

Phoenix, Aug. 11 – Heightened concerns about an oil supply glut continued to put pressure on already distressed oil and gas bonds on Tuesday.

“There were a lot of lower trades in that stuff,” a trader said.

The worries came as China devalued its currency by 2%, a move that sparked concerns of a looming currency war.

With a weaker currency, oil could become a pricier commodity for China, which could dampen demand.

On top of the China news, new reports indicated that current oil supplies – both domestic and OPEC-based – remained at record highs.

As a result of the latest news, benchmark U.S. crude oil prices deteriorated $1.51, or 3.36%, to $43.45.

As for the sector’s bonds, several names saw significant declines during the session.

Chesapeake Energy Corp., for instance, saw its debt dropping over 3 points on the day.

A trader deemed the 5¾% notes due 2023 off by 3½ points at 72, while the 4 7/8% notes due 2022 lost about as much, ending at 71.

He also saw the 6 5/8% notes due 2020 falling a deuce to 79.

At another desk, the 6 5/8% notes were pegged at 78¾ bid, down over 2 points.

California Resources Corp.’s 6% notes due 2024 meantime lost 2½ points, closing at 73¼, according to a trader.

The loss came amid “heavy volume,” he said.

SandRidge Energy Inc. was another weaker name, as a trader called its 8¾% notes due 2020 off 1½ points at 68. Another market source placed the 7½% notes due 2021 at 24 bid, down over 4 points.

Linn Energy LLC was also among the day’s losers, as a source saw the 7¾% notes due 2021 slipping over a point to 46½ bid.

China’s yuan devaluation also weighed on the mining sector, a trader said. Specifically, FMG Resources was under pressure.

A trader said the 9¾% notes due 2022 declined nearly 3 points to 91, while a second source saw the 6 5/8% notes due 2022 losing a point to 59 bid.

Verso up post-earnings

Fresh earnings were meantime moving around Verso Paper Corp.’s 11¾% notes due 2019.

A trader said the bonds rose almost a point to 39½.

The Memphis-based papermaker released its second-quarter results on Tuesday, reporting a wider net loss of $60 million.

That compared to a loss of $42 million the year before.

Despite the wider loss – attributed in large part to the company’s acquisition of NewPage – net sales jumped 142% to $778 million.

The bump in sales was also attributed to its NewPage acquisition.

In late July, Verso’s debt had taken a hit on a report that showed coated-paper prices had fallen about $20 per ton in that month alone. That report came about a week after Verso made a $79 million interest payment that some investors doubted would be made to begin with.

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