Distressed bonds continue to move up; Chesapeake debt racks up gains; oil and gas space firms

By Stephanie N. Rotondo

Phoenix, Sept. 9 – The distressed debt market remained firm on Wednesday, despite weakness in the equity markets.

Equities dropped by more than 1% during the session, erasing earlier gains that came on the back of positive employment data.

And while the distressed space was higher, overall liquidity was not stellar as investors instead focused on high-yielder Frontier Communications Corp. The company launched a roadshow on Wednesday for a $6.6 billion three-part offering of senior notes, the proceeds of which will be used to buy wireline assets from Verizon.

A trader noted that among the day’s most actively traded issues, three of them were Frontier bonds.

As for more distressed names, Chesapeake Energy Corp. continued to be active. The bonds began to improve on Tuesday as the company announced a new gas gathering agreement with the Williams Cos. and some of its subsidiaries.

The debt remained on an upward track during the midweek session, according to market sources.

One trader said the 6 1/8% notes due 2021 were “very active,” rising 1½ points to 82. The 5¾% notes due 2023 meantime edged up over a point to 77¼, as the 6½% notes due 2020 increased 1¼ points to 84¾.

A second source placed the 6 5/8% notes due 2020 at 84½ bid, up over a point on the day.

Under the new agreement with Williams and its subsidiaries, Chesapeake will move to a fixed-fee on both its Haynesville shale operating unit and at its dry gas Utica Shale asset in 2016. Fees at the Haynesvile property will also be reduced, allowing existing minimum volume obligations to be met.

Chesapeake will also be obligated to increase the number of online wells at Haynesville by 140 over the next two years.

Chesapeake is an Oklahoma City-based oil and gas company.

Oil bonds move up

Elsewhere in the oil and gas space, bonds were mostly up despite a 3.61% decline in U.S. domestic crude oil prices.

A trader saw Consol Energy Inc.’s 5 7/8% notes due 2022 driving up a deuce to 75 3/8. The trader also pegged Halcon Resources Corp.’s 8 7/8% notes due 2021 at 35½, up a point.

Linn Energy LLC’s 6¼% notes due 2019 meantime edged up a quarter-point to 36¼.

In its latest monthly short-term forecast, the U.S. Energy Information Administration said that U.S. oil output fell to a nearly one-year low, projecting that the production decline could last for another year.

However, the EIA also noted that any downturns in U.S. output would likely be marginalized by OEC production, which is expected to rise.

Because of the oversupply, the agency also said it believed prices would remain low, averaging $53.57 a barrel in 2016.

The latest forecast is 1.6% lower than previous estimates.

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