Oil sector extends gains following OPEC accord; Memorial Production up after forbearance

By Colin Hanner

Chicago, Dec. 1 – Oil – and its oil-related distressed notes – continued its rise in Thursday’s markets, carried over from Wednesday’s supply cut accord reached by the Organization of Petroleum Exporting Countries.

A trader remarked on how abnormal it is “to see how many points these energy names are up in just two days,” due to the OPEC deal and the rallying cry seen in equity and bond markets alike.

California Resources Corp. continued to see upticks in its most heavily traded distressed notes. EP Energy Corp., though not as actively traded as Wednesday, was up by several points, and Denbury Resources Inc. continued to pace higher, in line with oil futures prices.

Oil-related names, like driller Transocean Ltd. and geoscience company CGG SA, continued to gain off the OPEC news, traders said.

Oil and natural gas acquirer and developer Memorial Production Partners LP announced it has entered a forbearance agreement with the holders of two of its distressed notes, both of which saw modest increases on the day’s trading.

And still reeling from an asset sale breakup was Valeant Pharmaceuticals International Inc., which continued to fall further after reports surfaced that a potential $10 billion sale of its stomach-drug business was no longer on the table.

Other health care and pharmaceutical names mirrored the downward trend, including Concordia International Corp. and Community Health Systems Inc.

No stopping oil

A rally in energy is on full-view for oil and oil-related names, as oil futures continued to see steep rises and distressed notes followed suit.

On Wednesday, OPEC members reached a supply cut deal that will cut 1.2 million barrels per day in the coming month, and oil prices have not looked back, reaching their highest levels of the calendar year.

West Texas Intermediate crude was up $1.49, or 3.01%, to $50.93 at the close of the bond market on Wednesday. Brent crude was up $1.90, or 3.67%, to $53.74.

California Resources’ 8% notes due 2022 were up 3¼ points to 84 1/8, several traders said, extending its two-day gains to 11 points.

Though only seeing three trades, EP Energy’s 6 3/8% notes due 2023 were up 2 3/8 points to 73 3/8, a market source said.

Plano, Texas-based Denbury Resources was up 2 points to 89½, a market source said.

Stone Energy Corp.’s 7½% notes due 2022 were up 3½ points to 54½, a market source said, and MEG Energy Corp.’s 7% notes due 2024 were up 2¼ points to 91.

In oil-related names, CGG’s 6 7/8% notes due 2022 were up 1 point to 42½, a trader said, and the 6½% notes due 2021 were up 1 3/8 points to 42 7/8.

Transocean’s 7½% notes due 2031 were up 4½ points to 79½, a market source said, though they traded as high as 81 during intraday trading.

“The [OPEC] news is undoubtedly having an effect on other oil-related names,” a trader said.

Key Energy Services Inc. bucked with the upward trend, but movement in its 6¾% notes due 2021 was an anomaly compared with the several-point increases seen in other oil bonds.

The notes were up 18 points on one trade to 38, a market source said, with a trader adding that the last ZIP code he saw them at were in the mid-20s.

Coal keeps burning

“Peabody was higher again,” a trader said, referring to Peabody Energy Corp.’s 6½% notes due 2020, which were up 3 points to 67. A market source confirmed the handle.

Its 10% notes due 2022 were “up a couple points” to an 88 handle, a trader said.

Another trader said that his focus was on Murray Energy Corp. and its rise on the week, which continued on Thursday in its 11¼% notes due 2021.

The notes finished the day up 1 7/8 points to 73 3/8, with a market source saying that they were priced as high as 74½ during intraday trading.

Memorial up on forbearance

Memorial Production Partners has entered into a forbearance agreement with holders of 51.7% of its 7 5/8% senior notes due 2021 and of 69% of its 6 7/8% senior notes due 2022.

The noteholders have agreed to forbear from exercising their rights as a result of the company’s decision to skip paying $24.6 million of interest due on the 2021 notes, according to a company announcement.

The forbearance is in effect through Dec. 7.

The 7 5/8% notes due 2021 were up 1¼ points to 37½ on a “handful of trades,” a trader said, while the 6 7/8% notes due 2022 were up 2 points to 40 4/5, a market source said.

In addition, the company has reached an agreement with the lenders under its revolving credit facility for a waiver until Dec. 16.

The company said it “is engaged in ongoing discussions with its lenders and a steering committee of its noteholders regarding potential strategic alternatives to strengthen its balance sheet and improve its capital structure.”

Valeant falters

Traders continued to react to the broken asset sale that was reported on Wednesday for Valeant Pharmaceuticals, a deal that was rumored to have been valued at $10 billion.

Takeda Pharmaceuticals Co., a Japan-based company, was in talks to purchase Salix Pharmaceuticals, Valeant’s stomach-drug business, but The Wall Street Journal reported that the price of the sale, among other matters, could not be agreed upon during discussions.

On Thursday, Valeant’s distressed notes continued to fall.

A trader said the 6 1/8% notes due 2025 were down 1¼ points to 73, and its 6 3/8% notes due 2020 were down 1¼ points to 83¾.

The company’s 5½% notes due 2023 were down 2½ points to 72½, a trader said.

Fellow pharmaceutical company Concordia International’s 7% notes due 2023 were down 1 point to 37½, a trader said, a day after a modest ½-point increase.

Community Health Systems’ 6 7/8% notes due 2022 were down 1½ points to 65, a market source said, adding that the 7 1/8% notes due 2020 weren’t too far behind, down ¾ point to 69.

The Spinoff of Community Health – Quorum Health Corp. – was also down in its 11 5/8% notes due 2023, which were down 5/8 points to 78 5/8.

Checking in

A trader said that news of an amendment seeking to exclude certain bondholders from privileges of six of iHeartMedia Inc.’s notes continued to plague the notes on Thursday.

The media company’s 14% notes due 2021 were a “bit weaker,” down 2¼ points to 37¾, the trader said. He added the 9% notes due 2019 were down ½ point to 37¾.

The 10% notes due 2018 dipped into the high-60s, a market source said, rounding out the day with a 68¾ handle.

Last week, Avaya Inc. was reportedly weighing the option of filing for Chapter 11, as well as selling its call-center business. Its notes saw higher movement, and the trend continued on Thursday.

A trader said the telecommunications company’s 7% notes due 2019 were up 1¼ points to 88¼, and its 10% notes due 2021 were up 1/8 point to 47 5/8.

With rumblings about a potential exchanged deal “in the works,” according to one trader, Intelsat SA’s 7¼% notes due 2019 were up 2¼ points to 81.

The satellite communications company’s Luxembourg-linked 6¾% notes due 2018 were unchanged at 75½.

Susanna Moon contributed to this review

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