Chesapeake Energy bonds gyrate as bankruptcy rumors abound; Halcon notes also taken for a ride

By Stephanie N. Rotondo

Seattle, Feb. 8 – Distressed debt investors were focused on Chesapeake Energy Corp. on Monday as rumors the company was looking to file for bankruptcy pervaded the market.

At first, the bonds reacted quite negatively to the chatter. Once the company issued a statement dismissing the rumors, there was some bounce back, though the paper still ended weaker for the day.

Another notable name was Halcon Resources Corp., which said in a press release on Monday that it continued to “proactively explore multiple options” to strengthen its balance sheet.

The company noted that it had already reduced its debt load by about $1 billion in 2015.

Traders, however, gave mixed reviews on how those bonds performed, with one deeming the debt down outright and another seeing the paper firming. The second trader said the paper had dropped Friday, “probably on rumors they hired advisers to explore bankruptcy.”

“I guess there is going to be a lot of exploring [of options] in the E&P [sector],” a trader commented.

Not helping matters was the fact that the broader markets spiraled downward. Domestic crude oil prices declined 2.56% on the day, ending just north of $30 a barrel. Supply glut concerns were driving the commodity downward, especially as talks between Saudi Arabia and Venezuela over the weekend failed to provide any solid deal for cutting production among OPEC and non-OPEC members.

Chesapeake on a ride

Chesapeake bonds had a “wild ride,” a trader said Monday, as rumors circulated that the company was contemplating filing for bankruptcy.

The trader said the 3¼% notes due 2016 fell 20 points to the mid-70s. The debt then “rebounded when the company said they weren’t planning on filing,” trading into the mid-80s.

The trader said the 8% second-lien notes due 2022 were also active, falling to 36 before rallying back to 40. He called that down “only about a point.”

At another desk, a trader confirmed the trajectory of the 3¼% notes – falling 20 points at the open, then roaring back to end just 10 points weaker at 85.

However, he saw the 8% notes rising a deuce to 40¼.

The 6½% notes due 2017 dropped 14 points, he said, to end at 30. The 7¼% notes due 2018 declined 10 points to 24.

The rumors of bankruptcy came ahead of a $500 million maturity of the 3¼% notes due next month, thus the flurry of activity in that particular issue.

The Oklahoma City-based oil and gas producer has already been looking at ways to reduce debt as oil prices have fallen about 70% in the last year and a half. In December 2015, the company did a debt exchange, swapping $3.8 billion of 10 series of old notes for about $2.4 billion of the new 8% second-lien notes.

The company referenced that exchange in its statement out Monday. It also said that reports it had hired Kirkland & Ellis LLP to look into restructuring options were overblown, given that the firm has been advising Chesapeake since 2010 and that it did advise on the recent debt exchange.

“Chesapeake currently has no plans to pursue bankruptcy and is aggressively seeking to maximize value for all shareholders,” the statement read.

Halcon mixed

Halcon Resources meantime reiterated on Monday that it was exploring “multiple options” to shore up its bottom line.

That statement came on the heels of rumors about the hiring of advisers for a potential bankruptcy, according to a trader.

That trader said that the company’s press release helped the 8 5/8% notes due 2021 rebound “a few points” to the mid-50s from the low-50s.

“Bonds had been around 60 but tanked real late in the day on Friday,” he said, citing the emergence of the advisor rumors. “The headlines today about exploring options gave them a little bounce back from the low-50s.”

But another trader said the 9¾% notes due 2020 dropped 8 points to trade with a 7 handle.

Houston-based Halcon said it has already reduced its debt by about $1 billion in 2015, via various debt-for-equity and debt-for debt exchanges. In December alone, Halcon exchanged nearly $290 million of three series of old notes for $112.8 million 12% second-lien notes due 2022.

Energy Transfer loan slides

Energy Transfer Equity LP’s term loans dropped in trading on the back of news that Jamie Welch, chief financial officer at LE GP LLC, the general partner of Energy Transfer Equity, is being replaced by Thomas E. Long, according to traders.

Long is currently the chief financial officer of Energy Transfer Partners LLC, which owns the general partner of Energy Transfer Partners LP. Energy Transfer Partners LLC is 100% owned by Energy Transfer Equity.

In his new role, Long will be responsible for all financial aspects of the entire family of partnerships under Energy Transfer Equity, including Energy Transfer Partners, Sunoco Logistics Partners LP and Sunoco LP.

In an 8-K filed with the Securities and Exchange Commission on Monday, Energy Transfer Equity said that it has initiated discussions with Welch towards a potential consulting arrangement related primarily to the continued development of its LNG export project as well as other financing matters although, at this time, no agreements have been reached.

The company also said that the management change was not based on any disagreement regarding any accounting or financial matter.

On Monday, one trader had Energy Transfer Equity’s term loan B quoted at 74 bid, 77 offered, down from 76¾ bid, 78¾ offered on Friday, and the term loan C quoted at 76 bid, 79 offered, down from 79½ bid, 81 offered.

A second trader had the term loan B quoted at 74 bid, 77 offered, down from 77 bid, 79 offered, and the term loan C quoted at 76 bid, 79 offered, down from 80 bid, 81 offered.

The first trader explained that the downward move was primarily due to the chief financial officer change, but the market being down in general by a quarter to a half a point, depending on the credit, didn’t help the situation.

Energy Transfer Equity is a Dallas-based midstream oil and gas company.

Sara Rosenberg contributed to this article.

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