California Resources notes active on investment news; declining oil futures drive distressed energy trading

By James McCandless

San Antonio, Feb. 8 – Distressed debt trading on Thursday was described as limited, traders said, despite the ongoing equity market correction.

California Resources Corp. notes took multi-point swings as stakeholders reacted to Wednesday’s news that the company would be entering into a $750 million midstream joint venture with investment firm Ares Management.

A downward trend continued for issues in FirstEnergy Corp. after a ratings correction Wednesday in senior unsecured notes in two of the company’s subsidiaries.

Another loss in oil futures contributed to a bevy of activity in distressed oil and gas names. Rex Energy Corp., Jones Energy, Inc., and Northern Oil and Gas, Inc. made up much of the volume in the energy space.

Paper in telecom names Frontier Communications Corp. and Intelsat SA maintained high activity levels. Mallinckrodt plc’s high volume continued in the pharmaceutical space.

California Resources notes react

Notes in Los Angeles-based oil and gas producer California Resources jumped, according to a market source, reacting to Wednesday’s news released just as the market closed that it had entered a $750 million midstream joint venture with investment firm Ares Management, a deal composed of common and preferred equity interests. The firm also utilized a private placement deal worth $50 million to purchase 2.34 million shares of common stock.

The 6% notes due 2024 plunged more than 4 points to close at about 68¼ bid. The 8% notes due 2022 bounced up 2 points to close at 85 bid.

FirstEnergy falls again

Issues in Akron, Ohio-based electricity name FirstEnergy dropped again, a trader said, after Standard & Poor’s issued corrected ratings for notes connected to its FirstEnergy Nuclear Generation LLC and FirstEnergy Generation LLC. Those notes also received a lower recovery rating.

The 6.05% notes due 2021 traded down 2 points to close at 32¼ bid. The 6.8% bonds due 2039 fell about 2½ points to close at 33 bid.

Oil names trade

Market sources said that as oil futures declined another day, other news compounded for a high-volume day in distressed oil and gas companies.

State College, Pa.-based Rex Energy’s notes have been in freefall since Tuesday, as reports confirmed Thursday that the company is in talks with advisers for a committee of holders of its senior notes on a potential restructuring, financing, refinancing, and other transactions. A recent non-binding restructuring proposal has already been submitted by the company (see related story elsewhere in this issue).

The 8 7/8% notes due 2020 fell 3¾ points to close at 32 bid, after losing almost 24 points the previous day.

For a second day, issues in Austin, Texas-based independent oil and gas producer Jones Energy reacted to a ratings downgrade, a trader said. Reports confirmed that Fitch Ratings downgraded the long-term issuer default rating of the company and subsidiary Jones Energy Holdings, LLC, affirming a negative outlook. Fitch also assigned a rating to the company’s proposed $450 million first-lien bond issuance (see related story elsewhere in this issue).

“That new issue may not get shelved,” the trader said. “The way oil has been trading, the way their second lien deal has been pushed to 10%, and the way that the unsecured notes have gotten slaughtered have me guessing that. There’s probably going to be a distressed exchange at some point.”

The 9¼% notes due 2023 lost Wednesday’s gains to close at about 66¾ bid. The 6¾% notes due 2022 shaved off ¾ point to close at 65¼ bid.

Minnetonka, Minn.-based oil and gas name Northern Oil and Gas saw its paper continue high volume trading. The company announced plans for a note exchange, new equity, and management changes last week.

The 8% notes due 2020 gained almost a point to close at 87 bid.

Stalwarts active

Norwalk, Conn.-based wireline telecom Frontier Communications issues continued falling for a third day as a high-volume name. Movement has generally been positive since announcing recently that it had obtained favorable changes to its credit agreements.

The 7 5/8% issues due 2024 dropped slightly to close at 62½ bid. The 10½% issues due 2022 fell 3¼ points to close at 78½ bid. The 11% issues due 2025 lost 2½ points to close at 73½ bid.

Luxembourg-based satellite communications company Intelsat’s bellwether 5½% issues due 2023 lost 1¾ point to close at 75¾ bid.

Continuing its week of high volume, Britain-based pharmaceutical maker Mallinckrodt’s 4¾% notes due 2023 closed just below 79 bid.

“The day wasn’t as brutal for most distressed names as the stock market selloff, but select names like Frontier definitely felt it, “a trader said. “That may change tomorrow as the bond market usually lags behind equity markets.”

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