Bonanza Creek bonds fall amid weak earnings, pulled asset sales; Cobalt in retreat; Intelsat remains firm

By Stephanie N. Rotondo

Seattle, Aug. 2 – The distressed energy arena continued to be front and center on Tuesday, as more sector earnings were released and oil prices remained under pressure.

Domestic crude dropped below $40 for the first time since April, as investors prepared to see higher-than-normal stockpiles during the summer driving season in the U.S. Energy Information Administration’s weekly report.

Bonanza Creek Energy Inc. was in the news, having said on Monday that its ability to continue as a going concern was in “substantial doubt.” The company also reported weak quarterly results.

The bonds dropped 3 to 4 points in response.

Cobalt International Energy Inc.’s convertible debt was meantime weaker in the wake of its own earnings release, which also came with a handful of bad news.

“They took every bit of bad news they had and threw them out this morning with earnings,” a trader said.

In addition to posting a wider loss for the quarter, Cobalt also noted that a sale of its Angola blocks had hit a snag.

Also in the energy genre, Peabody Energy Corp. bonds continued to gain momentum.

The bonds “have been on a nice run,” a trader said, seeing the bankrupt coal producer’s 10% notes due 2022 gaining a deuce to close at 19¾.

Another trader said the name was “up a couple points,” placing the 10% notes at 19¾. He also saw the unsecured notes – such as the 6½% notes due 2020 – rising to a 17½ to 18 zip code.

Elsewhere in the world of distressed bonds, traders reported that Intelsat SA paper remained on an upward trajectory.

“Intelsat continues to be active,” a trader said, pegging the 8% notes due 2024 at 97.

He called that up half a point to a point on the day.

The trader also saw the 7¾% notes due 2021 ticking up a point to 26½.

At another desk, the 7¾% notes were seen at 25¾, unchanged. But the 7¼% notes due 2019 were a shade higher at 75½, while the 5½% notes due 2023 earned half a point to end at 67.

“All on pretty good volume,” the trader said.

No cheers for Bonanza

Bonanza Creek Energy reported earnings late Monday.

In its release, the Denver-based oil and gas company said that it was skipping its Aug. 1 interest payment on its $300 million of 5¾% notes due 2023. Additionally, the company said that planned asset sales had gone awry, bringing its future into question.

The bonds did not react favorably to the news.

One trader said the 5¾% notes were down 4 points to 41¼. Another trader deemed the issue off 3 points at 41.

For the quarter, Bonanza reported a net loss of $49.5 million, or $1.00 per share. On an adjusted basis, the loss per share came to 40 cents.

Bonanza had been looking at selling off assets in Arkansas and Colorado in order to enhance its liquidity.

“Although we received strong economic bids for both of these asset packages, conditions included in the bid proposals require that the company improve its liquidity and its balance sheet,” Richard Carty, president and chief executive officer, said in a statement. “As a result, we have suspended the divestiture efforts to focus on other liquidity enhancing and debt restructuring options.”

The company is working with Perella Weinberg Partners as restructuring advisers and Davis Polk & Wardwell as legal advisers.

Bad news for Cobalt

Cobalt International Energy also had earnings out, as well as a slew of bad news that depressed its 3.125% convertible notes due 2024.

A trader said the paper traded down to 34 from 40 previously. He also saw the 2.625% convertible notes due 2019 trading widely.

“They had two prints 39.328 and 35.5 at virtually the same time, so I don’t quite know what to make of that,” he said.

The equity underlying the shares (NYSE: CIE) meantime took a big dip, falling 38 cents, or 28.01%, to 98 cents.

“Obviously it wasn’t the best of news,” the trader said.

For the quarter, Cobalt reported a wider net loss of $205.55 million, or 50 cents per share. That compared to a loss of $66.81 million, or 16 cents per share, the year before.

As of June 30, long-term debt was $2.03 billion, while cash and equivalents came to $833.8 million.

However, its cash on hand is likely to be reduced by $250 million, the amount received from Sonangol, Angola’s state oil company, for a planned purchase of Cobalt’s 40% stake in offshore oil blocks in the region. Cobalt said Tuesday that the $1.75 billion sale – first announced in August 2015 – was unlikely to move forward. This adds to Cobalt’s troubles, as it is currently under investigation by the U.S. Department of Justice for its operations in the African state.

The bad news did not stop there, as Cobalt also announced that its Goodfellow #1 exploration well in the Gulf of Mexico – a project started in March that had everyone’s hopes high – was dry.

The company noted that its wider loss was due in part write-off taken because of the dry well.

One final bit of disappointing news was that the company has reduced its workforce by over 60% in the last few months.

© 2015 Prospect News.
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