Distressed debt market wavers with broad market sell-off; Chesapeake, Denbury notes slip

By Stephanie N. Rotondo

Seattle, Jan. 4 – The distressed debt market was “still pretty muted,” a trader said Monday, as the equity markets tumbled to start the New Year.

“I don’t think our market was really as bad as the equities,” the trader noted.

Another trader said the equity market’s decline, as well as the fact that desks were just starting to fill back up post-holiday, was weighing on trading activity.

In the broader markets, oil prices sold off after initially rising amid tensions between Iran and Saudi Arabia. Saudi Arabia is looking to impose sanctions on its Middle Eastern neighbor after it was reported that the Saudi embassy in Tehran was stormed on Sunday. The barrage came after Saudi Arabia executed a prominent Shiite cleric on Saturday.

Also weighing on the markets were the latest PMI figures from China, which contracted in the most recent month. That then resulted in the China stock market falling about 7%, at which point trading was halted.

The weakness then invaded the domestic markets, pushing the Dow Jones Industrial Index down over 1.5% for the day.

The volatility in oil then pressured the already distressed energy sector.

A trader said Chesapeake Energy Corp.’s recently issued 8% second-lien notes due 2022 were “active,” but also off over a point at 47½.

The trader also saw the 5¾% notes due 2023 slipping half a point to 29.

At another desk, a trader pegged the 8% notes in a 48 to 49 context, deeming that “kind of where it was.”

Still, for a bond that was issued in early December – holders received the paper in exchange for 10 series of notes maturing 2017 through 2023 – the debt is trading at a significant discount.

“The bonds never really came at par,” a trader said. “Where the [tendered] bonds were trading implied that there would be a discount [on the new issue].

“But I think it has traded down lower than initial expectations.”

Elsewhere in the oil and gas arena, a trader saw Denbury Resources Inc.’s 4 5/8% notes due 2023 dipping a shade to 32. The Plano, Texas-based company said late last month that it had launched an exchange offer for the 4 5/8% notes, as well as the 6 3/8% notes due 2021 and 5½% notes due 2022. Up to $650 million of the notes will be exchanged.

Holders who participate in the tender will receive $650 of new 7½% notes due 2022 for each $1,000 of old notes.

Denbury also said that its capital expenditure budget for 2016 would be in the range of $250 million to $300 million, a reduction of about 40% from the 2015 budget.

“While both of these actions are positive steps to help bolster the balance sheet, the company’s higher cost asset base and 2016 free cash flow uncertainty gives us pause for concern,” wrote Gimme Credit LLC analyst Evan Mann in an afternoon comment released Monday.

Among offshore oil drillers, a trader said there was “some inquiry” for Atwood Oceanics Inc.’s 6½% notes due 2021 on Monday.

He called the issue “down about a point” at 52 5/8.

© 2015 Prospect News.
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