Halcon Resources lauds debt swap, bonds dive; oil and gas preferreds up on crude gains

By Stephanie N. Rotondo

Phoenix, Aug. 28 – The distressed debt market ended the day with a fairly positive tone, though a trader noted that the “most notable” names of the day were ones that ended decidedly weaker.

Halcon Resources Corp., for instance, saw its debt drop about 10 points across the board after the oil producer announced a private debt exchange.

“They got primed,” a trader said of the leftover bonds’ decline.

Meanwhile, the bonds of J. Crew Group Inc.’s indirect parent company – Chinos Intermediate Holdings A Inc. – “got beat up,” a trader said, following the company’s earnings announcement on Thursday.

Halcon dives on debt swap

Houston-based Halcon Resources said late Thursday that it was exchanging $1.57 billion of notes for $1.02 billion of new 13% third-lien senior secured notes due 2022.

The exchange was privately negotiated and involved $497.2 million of the 9¾% notes due 2020, $774.7 million of the 8 7/8% notes due 2021 and $294.3 million of the 9¼% notes due 2022.

As for the leftover chunks of debt, they took a hefty hit come Friday trading.

A trader said the notes traded down to the mid-30s from the mid-40s, noting that the paper “got primed.”

Another market source placed the 9¾% notes in a 34½ to 34¾ context, down from 46 to 47 on Thursday. The 8 7/8% notes meantime fell to 33½ bid, 33¾ offered from 45 bid, 47 offered.

The 9¼% notes traded as low as 32½, which compared to previous trades in a 45 to 46 Zip code.

The swap will reduce the company’s annual interest expense by about $12 million.

On the news, Standard & Poor’s took action, dropping Halcon’s corporate rating to SD from B-.

Meanwhile, S&P cut the notes to D from CCC.

Such a rating change is typical when an exchange is categorized as a “distressed exchange.”

Oil preferreds on the rise

In the preferred stock space, a trader said that “oil guys are getting a little bounce back” as crude oil prices recovered from the week’s lows.

U.S. benchmark crude improved 6.63% on the day, due in part to expectations that weakening prices would dampen production.

More unrest in Yemen was also helping to push paper up, as questions about the stability of the region grew.

On Thursday, oil prices had also popped after Venezuela requested an emergency meeting of OPEC to discuss what to do about the recent price rout. However, that meeting will likely only occur if Saudi Arabia consents. But that country has previously indicated that it does not see a need to decrease production.

Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) were up 87 cents, or 6.35%, trading at $14.57. Legacy Reserves LP’s 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) were meantime 59 cents, or 3.87%, higher at $15.84.

Legacy’s 8% series A fixed-to-floating rate cumulative redeemable preferred units (Nasdaq: LGCYP) jumped 92 cents, or 6.18%, to $15.80.

One of the biggest sector movers – on a percentage basis – was Goodrich Petroleum Corp.’s 10% series C cumulative preferreds (NYSE: GDPPC), which ended up 79 cents, or 42.25%, to $2.66.

The Goodrich 9.75% series D cumulative preferreds (NYSE: GDPD) closed at $2.40, up 20 cents, or 9.09%.

And, Vanguard Natural Resources LLC’s 7.875% series A cumulative redeemable preferred units (Nasdaq: VNRAP) improved 60 cents to $22.02, a gain of 2.8%.

J. Crew takes a beating

J. Crew reported “earnings that were fairly weak” on Thursday, according to a trader.

Come Friday, the 7¾% senior PIK toggle notes due 2019 – an issue linked to the New York-based retailer’s indirect parent, Chinos Intermediate, were on the decline.

The trader said that the paper “had been in the low-60s” prior to the earnings announcement. The bonds then moved down to trade in a range of 51 to 55 on Thursday.

Friday morning, the debt opened at 51, but drifted all the way down to 45, the trader said.

“They got beat up,” he said.

For the second quarter, total revenue dropped 5% to $593.6 million, as same-store sales declined 11%.

Net loss was $13.6 million. That compared to net income of $10.8 million for the same quarter of fiscal 2014.

Adjusted EBITDA fell to $41 million from $67.6 million.

Cash and equivalents at the end of the quarter was $41.4 million, versus $64.5 million at the beginning of the period.

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