Peabody bonds improve on asset sale news; TerraForm shake-up boosts debt; Chesapeake up

By Stephanie N. Rotondo

Seattle, Nov. 23 – Distressed debt investors remained focused on the energy sector Monday as fresh news was helping to move things around.

A trader said Peabody Energy Corp.’s bonds were “pretty heavily traded” after the company announced asset sales totaling $358 million in cash.

The debt was trading up on the news.

Meanwhile, TerraForm Power Inc. saw its bonds improving after parent company SunEdison Inc. announced a management shake-up. TerraForm bonds, as well as SunEdison’ convertible debt and stock, have been hammered of late as hedge funds reportedly bail out of the renewable energy producer.

In the oil space, the recently clobbered Chesapeake Energy Corp. rebounded a bit as crude oil prices experienced a modest – and brief – rally on word Saudi Arabia would work with other OPEC partners to stabilize oil prices.

Though oil prices did initially gain on the news, West Texas Intermediate crude ultimately ended down nearly 3% at $39.39 a barrel.

Elsewhere, a trader said Breitburn Energy Partners LP’s 8 5/8% notes due 2020 closed around 30, down “12 and change [points]” from previous trades around 40 “several weeks ago.”

The trader noted that his firm believed the issue would wane because “we couldn’t find a buyer.” However, he was surprised at how much the paper had declined.

Also, Natural Resource Partners LP’s 9 1/8% notes due 2018 was seen falling 4 points to 67¼.

“That one doesn’t trade much though,” a trader remarked.

Peabody up on asset sales

Peabody Energy announced it was selling coal assets in New Mexico and Colorado to Bowie Resource Partners LLC for $358 million in cash.

The news – which was first announced late Friday – gave the St. Louis-based coal producer a boost, according to market sources.

One trader saw the 6% notes due 2018 rising 3½ points to 23¼, while the 10% notes due 2022 inched up 1½ points to 25½.

Another source pegged the 6½% notes due 2020 gaining 1½ points to end at 18 bid.

A third source saw the 6% notes “a few points better” at 23, though he called the 10% notes “basically unchanged.”

Under the terms of the deal, Bowie will also assume about $105 million in related liabilities. Additionally, the sale reduces Peabody’s self-bonding obligations by over $300 million.

Peabody said the transaction “is consistent with our stated focus of portfolio optimization.”

“At this time, we believe it is appropriate to monetize the value of these mines in a transaction that would bring forward multiple years of cash flows,” said Glenn Kellow, president and chief executive officer, in a prepared statement.

The sale is expected to close in the first quarter of 2016. Proceeds will be used for general corporate purposes and/or deleveraging activities.

Gimme Credit LLC analyst Evan Mann said the sale partially alleviated concerns about liquidity. “But in doing so, the company has monetized an asset that was a positive contributor to operating results and takes away from future earnings potential,” he wrote in an afternoon comment. “In addition, we think the company’s next strategic step will likely be a distressed debt exchange offer of the $1.6 billion of 6% senior notes due 2018 for new first lien notes to address this debt maturity, but would mean the layering in of first lien debt ahead of current bonds outstanding.”

TerraForm firms

TerraForm Power bonds popped Monday after parent company SunEdison announced management changes.

A trader called the 5 7/8% notes due 2023 up over 3 points to end at 73.

A second trader said the debt was “better, moving up to 73 to 74 area from the high-60s.”

SunEdison’s stock (NYSE: SUNE) meantime jumped 18 cents, or 6.38%, to $3.00.

SunEdison reported Monday that Brian Wuebbels, chief financial officer, would take over as chief executive officer for the TerraForm Power units.

Wuebbels will retain his CFO position at SunEdison.

Rebecca Cranna was appointed as TerraForm’s new CFO.

The company also made several changes to its board of directors.

The news also helped TerraForm’s debt emerge little fazed from a downgrade from Moody’s Investors Service.

The shake-up comes as SunEdison’s debt and equity have been in decline and reports of hedge funds bailing out of the name have run rampant. All that came after the company issued weak earnings and said it was revising its business strategy, cutting jobs and reducing projects.

Chesapeake bounces

A pledge from Saudi Arabia to work with OPEC producers to stabilize global oil prices gave the commodity a boost on Monday, though a new stockpile report from Genscape ultimately erased those gains.

Still, Chesapeake Energy’s bond – which have been battered as oil prices turned south – rebounded a bit in the wake of the news.

A trader deemed the 6 5/8% notes due 2020 up half a point at 48. Another market source placed the paper at 48 bid, up 1 point on the day.

For its part, Genscape reported that inventory at the Cushing, Okla., delivery point increased by 2.2 million barrels for the week ended Nov. 20. Analysts polled by Reuters had forecast a build of 1.1 million barrels.

The report only served to add fuel to concerns about oversupply.

Bon-Ton lower

Bon-Ton Department Stores Inc.’s 8% notes due 2021 were “down smartly,” a trader said Monday.

The trader saw the issue declining over 4 points to close at 26 5/8.

Another trader said the name was “weaker again,” seeing the bonds trading with a 26 handle.

“So down about 4 points,” he said.

On Thursday, the York, Pa.-based retailer reported earnings that resulted in a more than 20-point loss in the debt.

Net loss was $34 million, or $1.72 per share. That compared to a loss of $11 million, or 57 cents per share.

Sales declined 3% to $623.4 million.

Since the beginning of the year, Bon-Ton has lost a total of $107.6 million.

The company said its most recent results were weighed on by unseasonably warm weather, higher markdowns and increased costs from integrating sales.

Bon-Ton said it was looking at ways to reduce its 2016 expenses by $35 million. It also chose to skip its dividend payment of 5 cents.

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