Energy names jump on firmer oil prices; Gymboree gains; Valeant firms despite Senate scrutiny

By Paul Deckelman

New York, April 27 – Higher energy prices gave the junk bonds of oil and natural gas companies a big lift on Wednesday, traders said. Energy prices were given a boost by a lower dollar after the Federal Reserve sounded a dovish note on the prospect of further interest rate hikes.

Among the names seen having gained multiple points during the session were California Resources Corp., Chesapeake Energy Corp., EP Energy Corp. and Oasis Petroleum Inc.

The bonds of Freeport-McMoRan, Inc., the energy and metals mining company, were seen rebounding on Wednesday. The bonds had moved lower on Tuesday after the company reported disappointing quarterly numbers.

Gymboree Corp.’s bonds shot up as the children’s apparel specialty retailer announced a tender offer for a portion of those outstanding notes.

Valeant Pharmaceuticals International Inc.’s bonds gained on the day, even though one present and one former company executive and the company’s largest shareholder faced scrutiny on Wednesday from a Senate committee investigating the Canadian drug manufacturing company’s pricing policies.

Energy names get a boost

In the energy sphere, higher energy prices – given a boost by a lower dollar after the Federal Reserve sounded a dovish note on the prospect of further interest rate hikes – gave oil and natural gas companies’ bonds a big lift on Wednesday, traders said.

West Texas Intermediate for June delivery, the U.S. benchmark crude grade, saw its second consecutive gain, pushing up by $1.29 per barrel on the New York Mercantile Exchange to settle at $45.33.

The benchmark international grade, Brent crude for June delivery, likewise made it two straight gains, improving by $1.44 per barrel on the London ICE Futures Exchange.

A trader said that California Resources’ paper was up again on Wednesday, seeing its 8% notes due 2022 going home in a 67-to-68 bid context, which he called up 4 points from Tuesday’s levels around 63½ bid.

The company’s 6% notes due 2024 were trading “with a 38-handle,” a gain of 5 or 6 points. He said that as a whole, California Resources’ unsecured notes were up by 5 or 6 points, while its second-lien notes, like the 2022s, were up by 4 points.

He said the gains were not due to any kind of company-specific news but rather were a function of stronger oil prices.

“There were a few other [energy] names that seemed to be trading better as well,” he said.

He said that Chesapeake Energy’s 8% notes due 2022 were up around 69½ bid, 70 offered, calling that a gain of 6 or 7 points on the day.

At another desk, a trader said that Chesapeake’s paper was up multiple points, “on pretty heavy volume.”

He attributed the gains in Chesapeake and other oil and natural gas names to rising oil prices.

EP Energy’s 9 3/8% notes due 2020 were active, a trader said, trading up to 63¾ bid, which he called up 1¼ points.

A trader said that Oasis Petroleum’s 7¼% notes due 2019 pushed by 2¾ points to 94¼ bid.

The first trader said that “we’ve seen a pretty good rally in some of these energy names.”

Freeport on the rebound

A trader saw better levels Wednesday on Freeport-McMoRan’s paper. The notes rebounded from losses seen on Tuesday after the Phoenix-based gold and copper mining company and oil and natural gas producer reported a sharply wider quarterly net loss versus a year ago and lower revenues.

He said the bonds “looked better generically by 1 point or so.”

A second trader saw the company’s 5.45% bonds due 2043 up ½ point at 73½ bid, with volume of over $13 million.

He said its 5.40% bonds due 2034 were also up ½ point at 73½ and on $13 million of turnover.

Late Monday, Freeport-McMoRan reported a loss of $4.18 billion, or $3.35 per share, far wider than last year’s red ink of $2.47 billion, or $2.38 per share.

Revenue came to $3.53 billion, down from $4.15 billion in the year-ago period and down as well from analyst expectations of around $3.67 billion.

Freeport-McMoRan also said that it was planning to slash its oil and gas workforce by 25%. And the company is continuing to explore sale options for certain assets.

Fortescue up on debt cutting

Away from the new deals, a trader said that Fortescue Metals Group’s FMG Resources bonds “were one of the names that moved.

“It looks like they’re going to be reducing some debt.”

The Australian iron ore mining company said that it will repay $577 million of its 8¼% senior notes due 2019, anticipating annual interest savings of $48 million.

The repayment of those notes will bring the total amount of debt that Fortescue has repurchased to $1.7 billion in the past 12 months and more than $4.8 billion in the past two-and-a-half years, although the company’s outstanding debt remains a hefty $5.9 billion.

Fortescue will use cash on hand generated from sales of iron ore at recently higher prices; the metal was trading at $70 a ton late last week before drifting a little lower but was still up more than 40% since touching a low of $38 per ton back in December.

The trader said that the company’s notes were “up anywhere from 4 to 5½ [points] or so” on the day on the debt repayment news.

He said its most active issue was probably the 9¾% notes due 2022. He saw them up 2 points at 106½ bid.

At another desk, a trader opined that “I wouldn’t consider Fortescue to be a distressed name, really, anymore,” given the recent run that paper has had with improved iron ore prices, but he added “obviously that’s had a nice little move with the buyback of the 8¼s.”

He saw the 9 ¾% notes due 2022 up 3 points around the 107 bid area, on volume of more than $28 million, while the company’s 6 7/8% notes due 2022 “were up a few points as well.”

The latter paper went home Wednesday at 89 17/32 bid, up more than three points, on turnover of more than $12 million.

Valeant up as leaders testify

Elsewhere, a trader said that Valeant’s 6 1/8% notes due 2025 “traded a ton,” moving up 1 1/8 points at 85 1/8 bid. More than $31 million of those notes changed hands.

He saw the company’s 5 7/8% notes due 2023 “were also active,” calling them up ½ point at 85 5/8 bid.

Over $19 million of the latter bonds traded.

The Laval, Quebec-based drug maker was in the news on Wednesday as lame-duck chief executive officer J. Michael Pearson, former chief financial officer Howard Schiller and billionaire investor William Ackman, a major Valeant shareholder, appeared before a Senate committee investigating the company’s controversial drug pricing methods.

Pearson expressed regrets over the drug price hikes, and Ackman said he would recommend to the board of directors that it cut prices on the drugs that have been the focus of the lawmakers’ skepticism and criticisms.

Gymboree jumps on tender news

A trader said that “it looked like there was some activity in Gymboree, which I haven’t seen in a while.”

He said that Gymboree’s 9 1/8% notes due 2018 traded up – “wow!” – 5 points on the session to 50 1/8 bid.

He said the bonds were trading on Tuesday at 45, “and today, they bounce all the way up to 50 1/8.”

He noted that the bonds “were down in the 30s a couple of weeks ago – so obviously, something is going on in that name.”

The San Francisco-based children’s apparel retailer announced that it will tender for a portion of its $210.6 million of outstanding 9 1/8% notes, seeking to buy $40 million of the bonds for bid prices between $340 and $400 per $1,000 principal amount of paper submitted for purchase.

A second trader also saw the Gymboree 2018s up 5 points.

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