Battered energy names end week rebounding amid oil price rise, Sprint snap-back continues

By Paul Deckelman

New York, Jan. 22 – The distressed-debt market saw strong upside movement for a second straight session in the junk bonds of such recently-pressured energy credits as Whiting Petroleum Corp., WPX Energy Inc., Oasis Petroleum Inc., California Resources Corp. and Chesapeake Energy Corp., among others.

That upturn had begun on Thursday, following sharp losses earlier in the week, and the positive momentum continued into Friday.

In the convertibles market, Chesapeake Energy’s convertible preferred paper traded off during the day, in line with a small drop in its share price after the exploration and production company suspended the dividend on its preferred issues.

Its non-preferred convertibles were higher.

Apart from the energy names, there was continued strength in Sprint Corp. junk bonds, which had also moved up sharply on Thursday and again on Friday in a recovery from big losses suffered earlier in the week.

Overall market firmer

A trader said that the “the overall market was much, much stronger than we’ve seen all year so far,” adding that “it had been under significant pressure for most of the year, so at some point there was going to be some kind of a bounceback.”

He said that “definitely, these distressed E&P names saw a move back up today.”

Oil price gains spur energy

As was the case on Thursday, higher crude oil prices were a key driver in the energy sector’s recovery.

The March contract for the benchmark U.S. crude oil grade, West Texas Intermediate, jumped by $2.66 per barrel in Friday trading on the New York Mercantile Exchange, ending at $32.19.

That came on top of Thursday’s rise of $1.18 per barrel, which had broken a three-session losing streak that had seen the WTI price down in the upper 20s.

The March contract for the benchmark international grade, Brent crude, rocketed up by $2.93 per barrel in Friday trading on the London ICE Futures Exchange, settling at $32.18, on top of having soared by $1.37 per barrel on Thursday – also its first upturn after three straight days of losses.

“Energy was rebounding, big time,” one of the traders said, seeing the Oasis Petroleum 6½% notes due 2021 up by more than 12 points, closing at 54¾ bid.

He saw Whiting Petroleum’s 5% notes due 2019 gaining 9 points on the day.

At another desk, a market source saw the Denver-based E&P company’s paper up 7 3/8 points on the day at 59 5/8 bid.

At another desk, a trader saw California Resources Corp.’s 8% notes due 2022 “trading in the low 40s – that’s up a few points.”

Other energy names on the rebound Friday included Carrizo Oil & Gas, Inc.’s 7½% notes due 2020, which were up 6 points to 73½ bid, a market source said.

He also saw WPX Energy’s 6% notes due 2022 as 5 point winners, finishing the day at just over 57 bid.

Halcon Resources Corp.’s 8 5/8% notes due 2020 ended at 62 bid, up 4¾ points.

One of the traders saw Chesapeake Energy’s 8% notes due 2022 move up to a 46-47 context, versus 43 on Thursday.

“Part of that was the rally and part of that was the news about them suspending their preferred dividend – I guess that preserves cash that they could possibly use for [bond] buybacks or whatever.

“Them not paying out [dividends] to the lower parts of the cap structure, the preferred dividends, is a good thing.”

Chesapeake convertibles mixed

In the convertibles market, Chesapeake’s two series of 5.75% convertible preferreds were quoted lower at 0.5 point to 2.5 points over parity from more than 2 points to 4 points over parity previously, a trader said.

The preferreds were only trading in very small amounts and seen printing at $185, $165 and $180, another trader said.

The Oklahoma City-based oil and natural gas exploration and production company’s shorter-dated 2.5% convertible bonds, which have a put/call in 1.5 years, were meanwhile quoted higher and closed at 52.5 bid, 53 offered, up from about 50 previously.

Chesapeake shares were up in the early going but closed off 4 cents, or 1%, at $3.51.

“I would say that the news of the dividend suspension was received as a positive but there was less of a reaction because it was kind of expected,” the trader said.

There had been a lot of speculation at the end of last year regarding how Chesapeake would handle upcoming maturities and some thought the energy company might do a pre-packaged bankruptcy filing.

The dividend suspension is effective immediately and does not constitute an event of default under the company’s revolving credit facility or bond indenture.

Chesapeake will use the savings of about $170 million per year “to purchase debt at significant discounts in the near term,” according to a company news release.

One trader said the dividend suspension and debt buyback takes care of a portion of Chesapeake’s trouble – but how much it still needs to do will depend on the oil situation.

Sprint surge continues

Away from the energy credits, “Sprint remained topical and one of the most active names,” a trader said, seeing them “a little bit better today.”

It was the second straight session the Sprint bonds were going up by multiple points – after having been badly beaten down on Tuesday and again on Wednesday.

He saw the Overland Park, Kan.-based Number-Three U.S. wireless carrier’s 7 7/8% notes due 2023 trading around 65 bid, up from a 62-63 context on Thursday.

Sprint’s 7% notes due 2020 – Wednesday’s biggest loser, having been slashed by 12 point that session down to 60 bid – were trading “as high as 67,” he said. That was up from the 63 bid level to which the bonds had risen on Thursday as they began their rebound.

“The various parts of the Sprint capital structure were up from 2 to 4 points” on Friday, he said, matching the Thursday gains.

Another trader said that “some of the back-end Sprint stuff was up by 1 to 2 points on Friday.

He saw the Sprint 2023 bonds up 2½ points and saw its 7 5/8% notes due 2025 up by 3 points, “on very heavy volume as well.”

-Rebecca Melvin contributed to this review

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