Crude oil’s price drop weighs on sector bonds ahead of data; SunEdison debt declines

By Stephanie N. Rotondo

Seattle, Nov. 17 – A distressed debt trader said that “a lot of stuff was better in general” on Tuesday, though he noted that the firm feel did not necessarily extend to the distressed space.

“The market is definitely bifurcated,” he said, separated into “on-the-run” higher-quality names like First Data Corp. and “names that people don’t want to hold,” i.e., the more distressed issues.

“So some of those distressed names just can’t get out of their own way,” he said.

In particular, the oil and gas sector continued to see weakness, especially as domestic crude prices dropped 2.4% on the day, stemming Monday’s rally.

Chesapeake Energy Corp. is one such name that has been on the decline of late. In Tuesday trading, the company’s debt “originally tried to bounce, but it came in as the day wore on,” according to a trader.

He said the 5¾% notes due 2023 opened at 52 – which was the high end of Monday’s close – but ticked as low as 50.

A second trader called the issue down “2 and change” points, also at 50.

Crude oil prices moved closer to $40 per barrel on Tuesday as the market returned its focus to the oversupplied market. Ahead of new data from the American Petroleum Institute after the market close, analysts polled by Reuters were expecting to see U.S. stockpiles rise by 1.6 million barrels last week.

However, API reported a surprise draw down of 482,000 barrels for the week ended Nov. 13.

Still, the report indicated that inventories at the Cushing, Okla., delivery point were up 1.3 million barrels.

The market will next turn its attention to the U.S. Energy Information Administration’s weekly report due Wednesday morning.

SunEdison tanks

SunEdison Inc.’s convertible bonds were “getting clobbered,” a trader said Tuesday.

“A lot of that was because of the stock” which was “getting slaughtered,” the trader noted.

The trader saw the convertible bonds – such as the 2.75% convertible notes due 2021 – falling to the mid-30s from the mid-40s.

The stock (NYSE: SUNE) meantime declined $1.54, or 33.77%, to $3.02.

The Saint Peters, Mo.-based renewable energy company’s stock and bonds have been trending lower of late, ever since the company reported a quarterly loss of 91 cents per share on Nov. 10.

Analysts had predicted a loss of 70 cents per share.

Since the earnings release, chatter is that hedge funds are dumping their SunEdison holdings left and right on concerns that the company’s debt profile is unsustainable.

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