Chesapeake Energy paper continues retreat; oil remains weak, pressuring sector; WPX bucks the trend

By Stephanie N. Rotondo

Seattle, Feb. 9 – Chesapeake Energy Corp. continued to dominate the distressed debt space on Tuesday, just one day after rumors started circulating that the company was looking to file for bankruptcy.

Though the Oklahoma City-based oil and gas producer denied the chatter, its bonds took a dive in Monday trading. Come Tuesday, the declines continued.

One trader said the 8% second-lien notes due 2022 dipped 3 points to 37. The trader noted that the issue was the top trader of the day.

Meanwhile, the 3¼% notes that come due this year were “still very active,” trading off a deuce to 2.

Another market source deemed the 6 5/8% notes due 2020 off 4 points at 14 bid.

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

The company 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 said 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 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.

More pain for oil

Elsewhere in the oil and gas arena, a trader noted that oil prices were “down heavily, flirting with $27, I heard.”

Domestic crude dropped as much as 8% during the session as the International Energy Agency lowered its forecast for global oil demand over the next two years. But the commodity recovered a bit, ending down 4.45% at $28.37 a barrel.

With the declines in oil, “all these [oil and gas names] are down,” the trader said, though he added that the declines were not “drastic.”

Whiting Petroleum Corp.’s 5% notes due 2019, for instance, slipped nearly a point to 50¼.

Some names, however, experienced more of a downturn.

EP Energy Corp. was one such name, as its 9 3/8% notes due 2020 lost 8 points to close at 22¼, according to a trader.

The trader noted that the paper hadn’t traded since Friday.

WPX selling assets

WPX Energy managed to buck the downward trend in the oil and gas space on Tuesday. Its debt ticked up a touch on news the company had sold off some assets.

A trader called the 6% notes due 2022 up almost a point at 48¾.

The Tulsa, Okla.-based company said in a press release on Tuesday that it was selling its wholly-owned subsidiary, WPX Energy Rocky Mountain LLC, to Terra Energy Partners LLC for $910 million.

Terra will also assume about $100 million in transportation obligations in exchange for more than $90 million of WPX’s natural gas hedge value. WPX will keep over $110 million in additional hedge gains, to be realized throughout the year.

The deal is expected to close in the second quarter.

The company said proceeds from the sale would be used for a “variety of options,” including reducing debt, more drilling programs and other capital expenditures.

“The murky use of proceeds tempers our otherwise huge enthusiasm for this news,” wrote Gimme Credit LLC analyst Philip C. Adams in an afternoon comment.

WPX will release its latest quarterly report, as well as its planned capital expenditure budget for 2016, on Feb. 25.

Fieldwood loan dips

Fieldwood Energy LLC’s term loans weakened in trading following downgrades by Moody’s Investors Service to the company’s corporate rating to Caa3 from B2, senior secured first-lien term loan to Caa1 from Ba2 and senior secured second-lien term loan to Ca from B3, according to a trader.

The first-lien term loan was quoted at 59 bid, 61 offered, down from 63 bid, 65 offered, and the second-lien term loan was quoted at 15½ bid, 17½ offered, down from 16 bid, 18 offered, the trader said.

Moody’s explained the downgrade in ratings reflect the company’s unsustainable capital structure, weak liquidity and an expectation of continued degradation in leverage and coverage metrics through 2017 as existing hedges roll off.

The ratings agency went on to remark that based on its expectations for low oil and natural gas prices over the next several years, it believes Fieldwood’s debt will likely need to be restructured.

Fieldwood is a Houston-based private oil and gas exploration and production company.

Intelsat mixed

Away from oil and gas names, Intelsat SA paper ended the day mixed, according to market sources.

One trader saw the 7¾% notes due 2021 sliding almost 2 points to 36. Another source saw the 6 5/8% notes due 2022 inching up half a point to 63¾.

There was no fresh news out on the Luxembourg-based satellite company, but investors have been growing more and more concerned about the future as leverage has climbed to about 8x. Additionally, the company has a high fixed-costs structure and declining revenues.

Sara Rosenberg contributed to this article.

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