Chesapeake, California Resources down; Endo plunges on guidance cut; Penney off on belt tightening

By Paul Deckelman

New York, May 6 – Distressed energy bonds continued their gyrations on Friday; those bonds had fallen on Wednesday and had firmed on Thursday, only to find themselves back on the downside on Friday.

Among the names that traders saw in retreat was California Resources Corp.

They also saw Chesapeake Energy Corp.’s benchmark 2022 bonds giving up some of the strong gains which they had notched Thursday on the news of a pending asset sale.

One energy-related name which had failed to join in Thursday’s generalized sector upturn was oilfield services provider Weatherford International plc; those bonds had been down solidly on Thursday and continued to fall on Friday.

Away from the energy arena, Endo International plc’s bonds and shares were down sharply in heavy trading after the Irish pharmaceutical manufacturer released full-year guidance well below analysts’ expectations.

J.C. Penney Co. Inc.’s bonds followed its shares lower on news reports the department store retailer had sharply cut employee hours and had frozen overtime, among other measures to avoid missing its quarterly expense targets.

Endo bonds battered

Traders noted the sharp fall in Endo International’s shares and its junk bonds, after the Dublin, Ireland-based pharmaceutical company put out sharply lower full-year revenue and earnings projections.

Its Endo Finance 6% notes due 2023 were the most actively traded junk market issue, with over $98 million changing hands.

A trader pegged those bonds at just below the 87 bid mark, a loss of more than 4 points on the day.

Other Endo issues followed a similar downward trajectory. Its 6% notes due 2025 declined to 88 bid on $29 million of volume. Its 5¾% notes due 2022 eased to 89 bid, with over $17 million traded.

Endo’s Nasdaq-traded shares Its shares fell $10.42, or 29%, to $16.17. Volume of 57.8 million shares was more than seven times the norm.

The company said it lost $133.9 million, or 60 cents per share, for the first quarter, compared to a loss of $75.7 million, or 43 cents per share, in the year-earlier period.

Adjusted earnings were $1.08 per share, which was a few cents better than many analysts expected, however.

Endo reported revenue of $963.5 million, which was up from $714.1 million in revenue in the year-earlier period, but below estimates for revenue of $964.4 million.

Looking ahead, the company cut its full-year estimates to a range of $4.50 per share to $4.80 per share for earnings, which was lower than $5.85 to $6.20 per share previously expected, and revenue was cut to $3.87 billion to $4.03 billion, which was down from $4.32 billion to $4.52 billion previously expected.

Analysts had been expecting earnings of $5.68 per share on revenue of $4.3 billion.

The company blamed its lowered forecast on increasing competition and regulatory delays.

Penney paper punished

Another decliner was J.C. Penney, whose 8 1/8% notes due 2019 dropped more than 3 points on the day to 99¾ bid.

A trader at another shop saw the Plano, Texas-based department store retailer’s 5.65% notes due 2020 fall to a 90½ to 91½ context – well down from prior levels in the 95 to 96 bid area.

And yet another trader located the 5.65s at 93 bid, calling them down a deuce on the day.

Penney’s notes followed its New York Stock Exchange-traded shares lower; those shares lost 67 cents, or 7.50%, closing at $8.26.

The shares and bonds retreated in reaction to news reports indicating that the retailer has slashed employee hours and frozen overtime at its more than 1,000 stores in the United States and Puerto Rico to avoid missing its quarterly targets.

Energy names ease

In the volatile energy sector, bonds which had firmed smartly on Thursday amid higher crude oil prices were seen having given back some of those gains on Friday, even though crude prices continued to gain.

A trader suggested that profit-taking on the Thursday gains might be a factor,

“Chesapeakes were a little lower,” he noted seeing the company’s benchmark 8% second-lien senior secured notes due 2022 at 64½ bid, 65½ offered, off from their Thursday close around 67 bid.

At another desk, the bonds were seen down 2¾ points at 64¼ bid, with over $21million traded.

However, in the convertibles market, Chesapeake converts extended gains on Friday despite a pullback in the Oklahoma City based oil and natural gas exploration and production company’s common shares.

“Guys are thinking that they are going to come back and buy these,” a sellsider said about the company’s intentions for the convertible bonds.

Chesapeake’s 2.5% convertible notes due 2037 were seen up at 91 from 87 to 87.5. The shares pulled back to $4.59 from $5.71, or a loss of about 20%.

Buoying the debt is the company’s announcement that it will sell $470 million in assets in Oklahoma to Newfield Exploration Co. as part of its plans to shore up finances. It expects further divestitures during the second and third quarters

Back in the junk bond market, Chesapeake sector peer California Resources’ 8% notes due 2022 slid 6½ points to 60 bid on over $14 million of volume.

Weatherford walloped again

It was another day of carnage for oilfield services provider Weatherford International’s bonds.

Those notes had fallen sharply on Thursday, and were continuing down that losing path on Friday.

“They were down a bunch,” a trader said on Friday,

He saw the company’s 9 5/8% notes due 2019 down 4½ points on the day at 95½ bid after having fallen by a like amount on Thursday.

He said its 5 1/8 notes due 2020 fell to 76 bid, 77 offered, down from 82 at the end of the day on Thursday.

“They just got clobbered,” he said.

Weatherford’s paper had gotten hammered down on Thursday and again on Friday, after the company reported disappointing numbers and guidance.

Excluding certain items, Weatherford lost 29 cents a share in the first quarter – worse than the 25-cent average loss that Wall Street had been expecting.

The company also lowered its guidance on free cash flow for this year by $200 million to a range of $400 million to $500 million.

-Rebecca Melvin contributed to this review

© 2015 Prospect News.
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