Verso Paper bonds decline as future called into question; Linn Energy debt trends soft

By Stephanie N. Rotondo

Seattle, Nov. 16 – The distressed debt market was weak Monday as investors remained focused on ongoing negative news.

Verso Paper Corp., for instance, said its future was in question as liquidity and cash flows were insufficient to cover certain obligations. As such, the company said it had hired advisers to go over its restructuring options.

The company’s debt retreated on the news.

In the oil and gas space, Linn Energy LLC paper was deemed slightly better to down a fair bit. The movement came after the company announced on Friday that it had agreed to exchange $2 billion of senior unsecured notes for $1 billion in new second-lien debt.

Come Monday, Moody’s Investors Service downgraded the company, deeming the debt swap a distressed exchange.

Also in the oil and gas arena, Chesapeake Energy Corp. and California Resources Corp. continued to be active but remained weaker despite a gain in oil prices.

A trader said there was “quite a bit of activity” in Chesapeake’s 5¾% notes due 2023, which he said closed off a point at 51 7/8.

The trader also saw the 6 5/8% notes due 2020 declining a point to 57½.

As for California Resources’ 6% notes due 2024, they slipped half a point to 61½, according to the trader.

Verso future in doubt

In its latest earnings release, Verso Paper warned that its ability to continue as a going concern was in doubt due to insufficient liquidity and cash flow.

On the news, a trader saw the 11¾% notes due 2019 trading at 1¾. He noted that the paper hadn’t traded “in months” and that it was last trading around 16.

Another trader said the bonds were down 3 to 4 points on the day.

Verso said that it had retained PJT Partners LP and O’Melveny & Myers LLP to advise on potential restructuring options. The company said it has already begun talks with creditors and that some options currently on the table include asset sales of certain mills.

The restructuring warning came as the Memphis-based coated papermaker reported a 123% increase in net sales, driven primarily by the addition of sales from NewPage, which the company acquired earlier this year.

Net sales rose to $782 million from $350 million in the same quarter of 2014.

However, on an adjusted basis – in part due to the NewPage acquisition and in part to the sale of the Bucksport mill – sales were seen down year over year.

Net loss meantime widened to $111 million from $36 million.

Adjusted EBITDA came to $84 million, up from $41 million.

Linn trends lower

Linn Energy’s unsecured bonds were “trading a few points lower, into the low-20s,” a trader said.

Another market source pegged the 7¾% notes due 2021 at 20 bid, down more than 4 points on the day.

However, another trader saw the 6 3/8% notes due 2022 rising a bit to close at 44¾.

On Friday, the Houston-based oil and gas company said it had inked agreements to privately exchange $2 billion of its senior unsecured notes for $1 billion of 12% second-lien notes due 2020.

The exchange is expected to decrease the company’s annual interest expense by about $16 million.

While the swap is a boon for the company’s balance sheet, Moody’s said it was tantamount to a distressed exchange and thus downgraded Linn’s senior unsecured notes to Caa3 from B3.

The proposed new notes were assigned a rating of Caa1.

Furthermore, Moody’s opined that Linn must do more to reduce its debt profile “in order to improve asset coverage of debt as the company’s hedge book continues to roll off into materially lower commodity prices.”

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