Distressed debt trading muted as earnings season begins; Chesapeake Energy bonds higher on amendments

By Stephanie N. Rotondo

Seattle, April 11 – Distressed energy names were in focus on Monday in what was otherwise deemed a lackluster day of trading.

“Slow day,” a trader said. “Not much activity.”

Mondays have been on the lighter side of late, but this week’s subdued start could be due to it being the start of first-quarter earnings season. Given the volatility in energy prices, chatter is that the latest quarterly results will be widely disappointing.

Still, a nearly 2% gain in domestic crude oil prices was moving up the energy sector on Monday.

Oil pushed up to over $40 a barrel during the session, helped in large part by comments from Russia that its production in 2017 would likely remain flat year over year. However, several banks were expressing doubt that any production freeze deal coming out of Doha next week – when a group of OPEC and non-OPEC producers meet to discuss the proposal – would do much to help rebalance the commodity’s price.

Chesapeake Energy Corp. was a big winner for the day, boosted not only by rising oil prices, but also by news the Oklahoma City-based oil and gas producer had put up most of its assets – the company did not specify which ones – in order to maintain the borrowing base on its $4 billion revolving credit facility due 2019.

Other amendments were also made, including pushing the next redetermination date out until June 2017 and allowing for the incurrence of up to $2.5 billion in first-lien debt.

A trader saw the 8% second-lien notes due 2022 jumping “almost 7 points” on the news to 55. Another market source placed the 6 5/8% notes due 2020 at 42 bid, a gain of 2 points on the day.

The amendments also require that Chesapeake maintain at least $500 million in liquidity.

While the news was taken positively by investors, some took a more cautious approach.

“We are not changing our call on [Chesapeake], as we’re concerned about the rate of cash burn in 2016,” wrote Gimme Credit LLC analyst Philip C. Adams in an afternoon comment out Monday. “But on its face, the amendments would seem to improve the odds that [the company] might have sufficient liquidity to meet its early 2017 maturity.”

Oil names trend higher

Elsewhere in the oil and gas space, WPX Energy Inc.’s 5¼% notes due 2024 were seen inching up half a point to 69½.

On Friday, the Tulsa-based company said it had closed on the sale of its wholly owned subsidiary WPX Energy Rocky Mountain LLC to Terra Energy Partners LLC for $910 million.

Comstock Resources Inc.’s 9½% notes due 2020 were also better, ticking up almost half a point to 13 3/8.

Last week, the Frisco, Texas-based producer said it had completed a private exchange offer of $14.3 million of its 7¾% senior notes due 2019 for 2.6 million shares of common stock. The deal not only reduced debt, but also lowered annual interest expense by $1.1 million.

In the last year, Comstock has reduced its debt by nearly $184 million, resulting in annual interest savings of $16.1 million.

A trader also saw Breitburn Energy Partners LP’s 8 5/8% notes due 2020 ticking up a shade to 5 7/8. However, the company’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) were meantime bucking the upward trend, falling $1.16, or 20.35%, to $4.54. The loss made the issue the biggest percentage loser of the day.

Among other energy-linked preferreds, Legacy Reserves LP’s 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) were up 43 cents, or 15.14%, at $3.50. The 8% series A fixed-to-floating rate cumulative redeemable preferred units (Nasdaq: LGCYP) were up 48 cents, or 17.39%, to $3.24.

And, Stone Energy Corp.’s 7½% notes due 2022 were one of the few losers for the day, falling a point to 26¾.

“I think they are nearing bankruptcy,” a trader said.

Avaya, Intelsat lose ground

Away from commodities, there was some softness creeping into the marketplace.

A trader said Avaya Inc.’s 7% notes due 2019 dipped a point to 69½.

The weakness came on the heels of a downgrade from Standard & Poor’s on Friday. The rating agency cut the corporate rating to CCC from B-, and also took negative actions on its various debt layers. S&P cited weak operating performance and “significant debt refinancing risk” for its decision.

Meanwhile, a trader said Intelsat SA’s 6¾% notes due 2018 slipped a quarter-point to 74¾. But another source saw the 6 5/8% notes due 2022 adding nearly a point to close at 55½ bid.

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