Distressed market activity wanes ahead of holiday; Denbury drops on exchange news

By Stephanie N. Rotondo

Seattle, Dec. 22 – As the Christmas holiday neared, there was “not much volume” in the distressed bond market on Tuesday.

“It’s starting to wind down for year’s end,” a trader said. However, he added that there was “still some bid-wanted, offer-wanted activity” as investors looked to jockey their positions.

The result was a market that was fairly mixed on the day, though still mostly centered on commodities.

Denbury Resources Inc., for instance, saw some trading after the company said late Monday that it was launching a private exchange offer for three series of notes.

Chesapeake Energy Corp. was meantime mixed in the wake of its early tender results on its own private exchange offer.

Away from that space, there was some action in J.C. Penney Co., Inc.’s 6 3/8% notes due 2036, according to a trader.

The trader saw the bonds rising “almost 3 points” to 62 7/8, though there was no fresh news to act as a catalyst.

Meanwhile, iHeartMedia Inc.’s 9% notes due 2021 improved a point to 68¾.

Denbury exchanging debt

Denbury Resources announced late Monday that it would privately exchange its 6 3/8% notes due 2021, 5½% notes due 2022 and 4 5/8% notes due 2023 for up to $650 million of new 7½% notes due 2022.

Come Tuesday trading, a trader saw the 5½% notes dropping nearly 5 points to 32.

For each $1,000 of notes validly tendered, holders will receive $600 in new notes. For those that participate by the early deadline – 5 p.m. ET on Jan. 7 – they will receive an additional $50 of new notes.

Additionally, the Plano, Texas-based oil and gas producer will pay any accrued and unpaid interest on the notes in cash.

The new notes will rank senior to any remaining outstanding bonds.

The offer expires at 11:59 p.m. ET on Jan. 20.

Chesapeake mixed

Chesapeake Energy paper was mixed in Tuesday trading.

A trader saw the 3.57% notes due 2019 adding a point to close at 26¼. However, he deemed the 6½% notes due 2017 unchanged at 47.

A second market source pegged the 6 5/8% notes due 2020 at 26½ bid, up a deuce.

On Monday, the Oklahoma City-based oil and gas company said 41% of 10 series of notes maturing 2017 through 2023 had been tendered in its previously announced private exchange offer, as of the early deadline.

Holders of the tendered notes will receive new 8% second-lien notes due 2022 on a sliding scale basis, with priority going toward the most recent maturities.

The offer expires at 11:59 p.m. ET on Dec. 30.

California Resources cut

California Resources Corp. was also mixed on the day as Moody’s Investors Service downgraded the company.

A trader placed the 5% notes due 2020 at 35¾, off nearly half a point. The 6% notes due 2024, however, were steady at 30½.

Moody’s cut its corporate family rating on California Resources to Caa1 from B1. The unsecured notes were slashed to Caa3 from B2.

Moody’s said the actions were based on the company’s recent retirement of $2.8 billion of senior unsecured notes in exchange for $2.25 billion of new second-lien paper. The rating agency said it considered it a distressed exchange and therefore a default.

While the shadow of the default will be taken off of the ratings by next week, Moody’s noted that the current low oil price environment does not bode well for the company. Furthermore, California Resources could be forced to amend covenants as soon as the first quarter of 2016, the agency said.

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