Energy names retreat as crude stockpiles grow; Denbury Resources off on bond swap, downgrade

By Paul Deckelman

New York, May 4 – The beleaguered bonds of oil and natural gas companies were lower on Wednesday amid mixed crude oil prices against a backdrop of continually rising crude oil stockpiles.

The U.S. Energy Information Administration reported that crude oil stockpiles increased to new record levels last week, rising by 2.8 million barrels in the week ended Friday.

That put inventories at 543.4 million barrels, or about 1 million barrels more than analysts had anticipated.

In the junk bond market, names such as Chesapeake Energy Corp., Continental Resources, Inc., Freeport-McMoRan Inc. and California Resources Corp. were seen on the downside.

Chesapeake’s convertible notes were also off, in line with a fall in its stock prices.

Another oiler, Denbury Resources Inc., was also down. Besides the impact of lower oil prices, the company announced a private agreement with some of its bondholders to exchange their existing paper for a lesser face amount of new second-lien notes, causing S&P to cut its ratings.

On the upside, iHeartMedia Inc.’s bonds strengthened after the broadcasting and outdoor advertising company reported better-than-expected first-quarter numbers.

In the bank debt market, iHeartMedia’s term loan D was also seen to have strengthened by a few points on those quarterly results.

Energy names lower

A trader said that energy names “were generally lower, in line with recently struggling oil prices.”

The benchmark U.S. crude grade, West Texas Intermediate for June delivery, actually rose slightly on the day in trading on the New York Mercantile Exchange, ending up 13 cents per barrel at $43.78 – its first gain after three straight sessions before that of decline.

But the key international benchmark grade, Brent crude for July delivery, saw a fourth straight day of losses on the London ICE Futures Exchange, ending Wednesday down 35 cents per barrel at $44.62.

Sentiment was not helped by the latest statistics on crude oil stockpiles, as mentioned.

Crude stockpiles on the East Coast and in the Midwest were higher than at any time since 1990.

Against that sobering backdrop – indicating that oil prices are not likely to strengthen any time soon – some well-known oil names were posting losses in Wednesday trading.

Chesapeake Energy’s 8% second-lien senior secured notes due 2022 lost nearly a full point, ending at 63¼ bid, with over $18 million traded.

Its 6 5/8% notes due 2020, though, were seen by a trader about unchanged at the 57-58 bid level.

In the convertibles market, Chesapeake’s 2.5% convertible notes due 2037 were seen trading just south of 83, which was a little lower compared to previous trades and about in line with the lower stock price for the Oklahoma City-based energy company. Its New York Stock Exchange-traded shares closed at $5.65 – down by 15 cents, or 2.59%. Volume of over 48 million shares was nearly twice the norm.

Back among the energy sector’s straight bonds, Continental Resources’ 5% notes due 2022 were off by ½ point at 90 bid, on volume of over $16 million.

California Resources’ 8% notes due 2022 were also half-point losers, ending at 62¼ bid, with over $12 million traded.

WPX Energy Inc.’s 7½% notes due 2020 were particularly hard-hit, plunging by 2¼ points to 92¾, with more than $13 million traded.

Freeport-McMoRan – which operates in both the oil and gas and the metals mining industries – was also among the day’s big losers. Its 5.45% bonds due 2043 lost 3 points, ending at 69½ bid, with volume of over $16 million.

Denbury down on note exchange

Denbury Resources’ three series of bonds were all down multiple points on the session, more so than most of its sector peers, after the Plano, Texas-based oil and natural gas exploration and production company announced that it had entered into privately negotiated exchange agreements with holders of $839.4 million of its outstanding senior subordinated notes to exchange those notes for $482.9 million of new 9% senior secured second-lien notes due 2021 and about 33.6 million shares of the company’s common stock.

The deal takes out $123.4 million of its outstanding 6 3/8% senior subordinated notes due 2021, $301.7 million of its outstanding 5½% senior subordinated notes due 2022 and $414.3 million of its 4 5/8% senior subordinated notes due 2023.

The 5½% notes were the most active on the day, ending down 3 7/16 points at 57 7/16 bid, with over $14 million traded.

The 4 5/8% notes lost 3½ points to close at 56 bid, on over $12 million of turnover.

The 6 3/8% notes plummeted by 5 points on the day, ending at 59¼ bid, but saw only a handful of sizable trades.

News of the debt exchange prompted S&P to cut Denbury’s corporate credit rating to CC from B, along with the rating on its senior subordinated notes to CC from CCC+. The outlook is negative.

The transaction is viewed as a distressed exchange because investors will receive less than what was promised on the original securities, S&P said.

Once the transaction has closed, the agency said it expects to lower the corporate credit rating to SD (selective default) and the issue-level rating on the senior subordinated notes to D.

iHeart gains on numbers

On the upside, iHeartMedia’s 9% notes due 2021 were up by a deuce on the day at just over 73 bid, a trader said, while its 14% notes due 2021 firmed to 30¾ on better-than-expected quarterly numbers.

A second trader said its 10 5/8% notes due 2023 gained 3 points, to 72½ bid, while its 9% notes due 2019 gained 2¼ points to end at 79 bid, 80 offered, “so they were feeling better on the numbers,” although he added that there were “no really big trading amounts,” with around $11 million traded.

In the bank debt market, iHeart’s term loan D strengthened by a few points after the company released the better-than-expected first-quarter numbers, according to a trader.

The term loan D was quoted at 77¼ bid, 77¾ offered, up from 74¾ bid, 75½ offered, the trader said.

The San Antonio, Texas-based broadcasting and outdoor advertising company – formerly known as Clear Channel – reported that for the quarter, net loss attributable to the company was $88.5 million, compared with a net loss of $385 million in the first quarter of 2015, and consolidated net loss was $58.9 million, versus a net loss of $386.6 million in the previous year.

Consolidated revenue for the quarter was $1.36 billion, up from $1.34 billion in the comparable period in the prior year.

Consolidated OIBDAN for the quarter was $300.5 million, versus $276.4 million in the previous year.

Sun Edison seen lower

Elsewhere, many of the convertibles of bankrupt SunEdison Inc. traded at about 5. The newest SunEdison 5% bond was indicated down at 22 from 25.5 previously.

“It was about in line,” a Connecticut-based trader said of the bonds. “There are things moving a bit, but nothing drastic. Everything was basically in line.”

Sara Rosenberg and Rebecca Melvin contributed to this review

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