Dynegy zooms on possible Vistra takeover; Intelsat off slightly; energy up with oil

By Paul Deckelman

New York, May 19 – Traders in distressed debt said that most issues were firmer on Friday, in line with a general upturn in the broader high-yield bond market.

The big winner of the day was Dynegy Inc.’s bonds, which jumped in active trading on the news of a possible takeover bid from rival Texas electric power generation company Vistra Energy Corp. – the post-reorganization successor company to the old TXU Corp. and its various component companies.

Dynegy was not only the biggest gainer, but it was the volume leader as well.

Intelsat SA’s bonds were seen slightly easier, coming off the big gains which those notes had notched on Thursday after the communications satellite company sweetened the terms of its pending exchange offer for a big chunk of its bonds, part of its planned merger with sector peer OneWeb. The success of the debt exchange offer – which has now been extended through the end of the month – is considered crucial to the progress of the merger, and to the planned investment of $1.7 billion into Intelsat by OneWeb’s corporate parent, the Japanese tech company Softbank Group Inc.

Energy issues such as California Resources Corp.’s bonds were seen solidly higher, in line with a continued rise in crude oil prices.

Dynegy soars on takeover talk

A trader said “the biggest news of the day was probably the potential Dynegy takeover by Vistra.

The bonds were “all flying and very active.”

He estimated that “all of the stuff was up, some by as much as 7 or 8 points on the day, though they came off their highs later on.”

He saw the Houston-based power-generating company’s 7 5/8% notes due 2024 with “tons of trades, it was almost like it was a new issue, with 60 [round-lot] trades, plus.”

He pegged those bonds going home at 98½ bid, calling that a 6 point rise on the day.

He said its 7 3/8% notes due 2022 were up 3½ points on the day at 92 bid.

Dynegy’s 8% notes due 2025 and 5 7/8% notes due 2023 were “both very active,” with the 8s finishing at 98 bid and the 5 7/8s at 95 bid, both up 5½ points on the day.

“They were rockin’ and rolling pretty good,” he declared.

Besides notching powerful gains, the Dynegy bonds were the clear volume leaders, with a market source seeing volume in the 7 5/8% issue topping $63 million, the 7 3/8s turning over more than $50 million, the 8% notes with over $49 million traded and the 5 7/8% paper with over $28 million changing hands.

The Wall Street Journal reported that Dallas-based Vistra – the company which emerged from the wreckage of what used to be TXU Corp. – was making a bid to acquire Dynegy in hopes of being able to diversify beyond its own home base in Texas, since Dynegy has extensive operations elsewhere, including the Midwest.

Vistra is the corporate survivor from the 2014 Chapter 11 reorganization of the former Energy Future Holdings Corp., the name under which TXU operated after its 2007 leveraged buyout by private equity firms KKR, TPG Capital and Goldman Sachs Capital Partners.

The buyout left Energy Future Holdings and its affiliate, Texas Competitive Electric Holding Corp., saddled with over $40 billion of debt, which ultimately proved to be unsustainable and the company wound up in the bankruptcy courts – one of the largest corporate reorganizations in history.

The company was renamed Vistra from TCEH Corp. following its emergence from Chapter 11 last fall. Its units include TXU Energy, which provides electricity to retail customers, and power generator Luminant.

Intelsat eases off

Elsewhere Intelsat’s various issues of bonds were seen a little easier on Friday, having backed off the highs they hit in heavy trading on Thursday after the Luxembourg-based communications satellite company improved the terms of its pending debt exchange offer and extended the offer to run through the end of the month.

But unlike Thursday, when much of the capital structure had traded actively, a market source said that only one Intelsat issue – its 5½% notes due 2023 – actually generated a lot of volume, with over $16 million traded.

He saw the bonds down 1 point on the day, ending at 83 bid.

At another shop, they were seen going home at 84, down just ¼ point on the day.

On Thursday, those notes had surged more than 2½ points higher on volume of over $48 million, with the company’s other notes, such as its 7¾% notes due 2021 and 8 1/8% notes due 2023 following similar trajectories.

Trading in the Intelsat paper has been volatile all week against the backdrop of the big bond exchange offer that the company hopes will get rid of more than $3 billion of its current nearly $15 billion debt load.

Intelsat mounted the exchange offer as part of its planned pending merger with sector peer WorldVu Satellites Ltd., better known as OneWeb. That transaction, if consummated, would also see OneWeb’s corporate parent, Japanese technology company Softbank Group, make a $1.7 billion investment in Intelsat.

However, early in the week, Intelsat’s notes retreated. News reports suggested that Softbank, seeing the difficulty Intelsat has been having with its bond exchange effort, might reconsider.

But the bonds rebounded by multiple points on Thursday after Intelsat sweetened the terms of its exchange offer and extended the expiration to May 31 from May 18. The offer had originally been scheduled to expire on April 30, but the company has extended it several times in hopes of getting enough noteholders to agree to the swap to meet the required 85% threshold.

Prior to the sweetened terms, few noteholders had chosen to participate in the transaction.

Energy names improve with oil prices

Elsewhere, a trader said that energy sector bellwether California Resources’ 8% notes due 2022 had moved up more than 2¼ points on the day to end at 78 bid, with more than $13 million of the Los Angeles-based oil and natural gas exploration and production company’s paper changing hands.

He noted the nearly $1 per barrel gain in the price of West Texas Intermediate crude oil for June delivery, which settled on the New York Mercantile Exchange on Friday at $50.33.

North Sea Brent crude for July delivery rose by $1.10 per barrel on the London ICE Futures Exchange, closing at $53.61. It was the third straight gain for both crude benchmarks.

Other energy names seen better in the wake of the oil price gains including Denbury Resources Inc.’s 6 3/8% notes due 2021, up ½ point at 76½ bid, and Transocean Ltd.’s 8 1/8% notes due 2021 up ½ point at 102 bid.

St. Clairsville, Ohio- based coal producer Murry Energy’s 11¼% notes due 2021 rose 1¼ points Friday to 74½ bid, on very active volume of over $40 million, a market source said.

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