Distressed market quiet, energy names better, but Ocean Rig slides on bankruptcy warning

By Paul Deckelman

NewYork, Aug. 12 – The distressed segment of the bond market was quiet on Friday, traders said, in line with a generally relaxed wide junk bond market.

They did see oil and gas credits like Chesapeake Energy Corp., Oasis Petroleum Inc. and MEG Energy Corp. mostly better, helped by a second straight session of surging world crude oil prices. Deep-water drilling contractor Transocean Ltd. bonds were firmer in active dealings.

However, Transocean sector peer Ocean Rig UDW Inc.’s bonds fell after the company warned that current market conditions could force it into a bankruptcy filing.

Another downsider was Canadian drug manufacturer Concordia International Corp., whose notes, bank debt and shares retreated as the company issued downwardly revised revenue and earnings guidance.

Also in the healthcare sector, the traders saw continued weakness in Quorum Health Corp.’s notes, after the hospital operator had reported disappointing quarterly results.

Energy names better

Bond market trading overall on Friday was quiet, which traders variously ascribed to the usual summer Friday doldrums, the extreme heat conditions in New York and other business centers, and the distraction provided by the televised Summer Olympic games.

One trader said the overall market “had a good tone.

“Oil being up helped,” he added.

World crude oil prices surged for a second consecutive session after having posted losses for the two sessions before that.

September-contract West Texas Intermediate crude – the benchmark U.S. crude grade – shot up by an even $1 per barrel on Friday at the New York Mercantile Exchange, settling at $44.49, while October-delivery Brent crude, the main international benchmark grade, firmed by 93 cents per barrel, ending at $46.87.

On Thursday, those crude grades had soared by $1.78 and $1.99 per barrel, respectively

Given a boost by the firmer crude prices were such issues as Chesapeake Energy’s 3.93% notes due 2019, which rose by 7/8 point on the day, to 88 5/8 bid, on volume of more than $15 million.

It 5¾% notes due 2023 were the big winners on the day, up 2 1/8 points at 74 bid, with about $7 million having changed hands.

Other oil-patch gainers on the day included Oasis Petroleum’s 6 7/8% notes due 2023, up 2¼ points at 94¼ bid; MEG Energy’s 7% notes due 2024 up 2 points at 84 bid, and Tullow Oil’s 6% notes due 0220, also up a deuce on the day to close at 84½ bid.

Global energy drilling contractor Transocean’s bonds were seen improved with the overall better market tone and the pickup of the energy market.

Its 9% notes due 2023 finished at 98¼ bid, up 1 1/8 point, with more than $14 million traded.

Ocean Rig bonds slide

Transocean sector peer Ocean Rig UDW’s bonds fell sharply on Friday, after the Houston-based seaborne drilling contractor warned that currently difficult market conditions could force it to eventually seek bankruptcy protection.

That hammered its paper down by as much as 15 points in morning dealings, to around a 25 bid, 28 offered region.

Later on in the day, another trader said that the company’s 6½% notes due 2017 were ending at an even 30 bid, down 13¾ points on the session.

Ocean Rig’s Nasdaq-traded shares plummeted by $1.33, or 61.57%, to end at 83 cents. Volume of 24.8 million shares was 10 times the usual turnover.

Concordia gets clobbered

Away from the energy realm, traders saw considerable downside activity in Concordia International Corp.’s bonds, after the Oakville, Ont.-based pharmaceutical manufacturer reported quarterly results that included reduced guidance.

Its 9 ½% notes due 2022 plunged by 8¾ points to 83¾ bid, a trader said, on volume of more than $10 million.

Its 7% notes due 2023 were likewise lower at 76¾ bid, with more than $18 million traded.

The company’s Nasdaq-traded shares meantime plunged by $6.33, or 33.69%, ending at $10.03. Volume of 10.9 million was over 19 times the norm.

In the bank debt market, Concordia’s term loan fell to 94 bid, 96 offered from 97¼ bid, 98¼ offered after the company revealed that Adrian de Saldanha, chief financial officer, is leaving to pursue other opportunities, and full year 2016 guidance was revised, according to a trader.

Saldanha will be replaced by Concordia’s current executive vice president, Edward Borkowski.

Regarding full year guidance, the company said in a new release that it now expects revenues of $859 million to $888 million, down from prior estimates of $1.02 billion to $1.06 billion, and adjusted EBITDA between $510 million to $540 million, down from previous guidance of $610 million to $640 million.

The release went on to say that target 2016 year end net debt to EBITDA is 6.4 times or below, compared to the prior target of around 5.5 times.

Concordia quarterly numbers

Concordia disclosed second quarter results on Friday as well, showing a net loss of $570.4 million, or $11.18 per share, compared to a net loss of $3.3 million, or $0.1 per share, in the prior year. The net loss was a result of the impairment of $567.1 million recorded during the second quarter and the deduction of certain other significant cash and non-cash expenses.

Revenue for the quarter was $231.7 million, versus $75.2 million, in the comparable period in 2015.

And, adjusted EBITDA for the quarter was $142.3 million, compared to $54.4 million, in the previous year.

The company also announced that it is suspending its $0.075 dividend per common share, payable quarterly, as the belief is that the dividend payments can be better used towards long-term value-creating initiatives or debt repayment.

Quorum Health hit again

Another healthcare name not feeling so well on Friday was hospital operator Quorum Health; its 11 5/8% notes due 2023 lost 2½ points, ending at 83½ bid, with over $18 million traded.

On Thursday, those bonds had plunged by as much as 15 points, before regaining a little of their lost ground and closing around 10 points lower on the day, after the Brentwood, Tenn.-based medical services provider announced its second-quarter results.

The company – which was spun-off from Community Health Systems Inc. on April 29 – also updated its yearly guidance.

The net loss was $245.1 million, or $8.63 a share. Net operating revenues were $529.7 million.

The loss included impairment charges of $250.4 million.

The company also said that it was looking to pare down its debt profile and possibly sell off underperforming assets.

Some asset sales could be wrapped up in the fourth quarter, the company said in its earnings release.

Stephanie N. Rotondo and Sara Rosenberg contributed to this review.

© 2015 Prospect News.
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