Distressed bonds rebound with equities; coal price gains help sector’s debt; Chesapeake steady to better

By Stephanie N. Rotondo

Seattle, Sept. 30 – The distressed debt market ended the week – and the month – with a firm tone.

“Things were better with the general market,” a trader said. ‘The equity markets rebounded. There was $2 billion in inflows into high yield this week. It all helped general sentiment and pushed things higher.”

Still, with no credit-specific news to push distressed names one way or another, there was limited liquidity in the arena.

With coal prices seen improving, coal producers have seen their debt’s value rising. That was also true on Friday, as Murray Energy Corp.’s 11¼% notes due 2021 moved up “a couple more points,” trading at 57½, according to a trader.

The trader also noted that Peabody Energy Corp.’s 10% notes due 2022 inched up half a point to 41½.

In the oil and gas space, Chesapeake Energy Corp. – which had gained ground on Thursday ahead of pricing of a new convertible debt deal – was steady to slightly better in Friday trading.

A trader said the 8% second-lien notes due 2022 were “about unchanged” at 101½. Another market source saw the 6 5/8% notes due 2020 gaining half a point, ending at 94½ bid.

Late Thursday, the Oklahoma City-based company priced a $1.1 billion offering of 5.5% convertible bonds due 2026, with a conversion premium of 40%.

Initial price talk had the coupon in the mid-6% area, according to a market source, with a conversion premium of 25%. Talk was later reduced to 5.5% to 6%.

The deal was also increased from the originally announced $850 million.

Proceeds will be used for general corporate purposes, which may include debt repurchases and the repayment of a credit facility and senior notes with near-term maturities.

Away from energy related credits, Intelsat SA’s “luxco” bonds – like the 7¾% notes due 2021 – were “better,” a trader said, though he added that there was no news to act as a catalyst.

He pegged the debt at 33¾, up 1½ points on the day.

However, the company did say earlier in the week that was moving past a bondholder’s loan-default threat, which was prompted by recent bond repurchase transactions.

Speaking at a Deutsche Bank investor conference, Jacques Kerrest, chief financial officer, said it was comfortable to move forward with its intent to further balance its bottom line.

“We have a goal of de-leveraging the balance sheet by let’s say one-half or three-quarters of a turn,” Kerrest said. “That’s what we believe we are going to achieve. Today we have about $900 million in cash. We don’t intend to keep this in cash.”

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