Chesapeake Energy notes lower on ratings downgrade; PG&E notes drop on earnings miss

By James McCandless

San Antonio, May 1 – The distressed debt space closed the week with the energy sector remaining the main focus of the market.

Chesapeake Energy Corp.’s notes moved lower after receiving a ratings downgrade during the session.

Sector peer SM Energy Co.’s issues varied in direction on the heels of its own ratings cut.

Oil futures finished the week with more gains, followed by Occidental Petroleum Corp.’s and Whiting Petroleum Corp.’s paper

In the utilities space, PG&E Corp.’s notes dropped after the company released lagging first-quarter earnings.

Meanwhile, mining name Cleveland-Cliffs Inc.’s issues were under pressure as part of its structure saw its ratings slashed.

Retail name Revlon, Inc.’s paper diverged as the company completes amendments to its debt commitments.

Department store owner L Brands, Inc.’s notes tracked higher.

Elsewhere, Hertz Global Holdings, Inc.’s notes saw mixed trading activity.

Chesapeake lower

Chesapeake Energy’s notes moved lower to cap the week, traders said.

The 5 3/8% senior notes due 2021 lost 2 points to close at 1½ bid. The 11½% notes due 2025 shaved off ¼ point to close at 2¾ bid.

During the Friday session, the Oklahoma City-based independent oil and gas producer received a ratings downgrade from S&P Global Ratings.

The agency lowered its overall rating to CC from CCC and lowered a handful of issue-level ratings.

S&P says that the company is likely to file for Chapter 11 bankruptcy or conduct a similar distressed exchange within the next two months, noting a $135 million interest payment in June as a potential catalyst.

“That’s the most likely trigger for a filing,” a trader said. “The bonds have been ripped to shreds since the oil collapse.”

On Thursday, reports indicated that the company was in talks with creditors to provide bankruptcy financing of up to $1 billion.

SM Energy varies

Sector peer SM Energy’s issues varied in direction, market sources said.

The 6 1/8% senior notes due 2022 jumped up 10 points to close at 42 bid. The 5% senior notes due 2024 fell ¼ point to close at 31¾ bid.

Denver-based producer SM Energy received its own ratings cut in the middle of the Friday session.

Moody’s Investors Service lowered the company’s corporate family rating, probability of default rating and senior unsecured rating.

Moody’s cited the company’s plans to exchange several series of notes for up to $900 million of newly issued senior notes at a 35% to 50% discount.

At the close on Thursday, Fitch Ratings made similar cuts.

Oil gains

Oil futures finished the week with a gain, followed by distressed energy names, traders said.

The oil rally came as OPEC begins to implement recently agreed upon supply cuts.

West Texas Intermediate crude oil futures for June delivery racked up 94 cents to finish at $19.78 per barrel.

Houston-based peer Occidental Petroleum’s paper marked the day with an improvement.

The 2.9% senior notes due 2024 added ½ point to close at 76 bid. The 2.7% senior notes due 2022 garnered ¾ point to close at 87¾ bid.

Denver-based producer Whiting Petroleum’s notes joined the trend.

The 6¼% senior notes due 2023 rose ¼ point to close at 10¼ bid. The 6 5/8% senior notes due 2026 tacked on ¾ point to close at 10¾ bid.

PG&E drops

In the utilities space, PG&E’s issues saw a drop at the end of the day, market sources said.

The 6.05% notes due 2034 dived 6¾ points to close at 105¾ bid.

On Friday morning, the San Francisco-based bankrupt electric utility released an underwhelming first-quarter earnings report.

Earnings were pegged at 89 cents per share, missing the $1.03 per share profit that analysts had predicted.

Revenues also fell below projections at $4.3 billion.

Last week, the company announced that chief executive officer William Johnson would resign from his position at the end of June as the company emerges from bankruptcy.

Cleveland-Cliffs down

Meanwhile, mining name Cleveland-Cliffs’ paper was under pressure, traders said.

The 4 7/8% senior secured notes due 2024 were docked ½ point to close at 87 bid. The 9 7/8% senior secured notes due 2025 shed 1¼ points to close at 97½ bid.

The Cleveland-based iron ore mining company was another name to receive a ratings slash during Friday’s activity.

S&P lowered the company’s senior secured notes and senior unsecured notes ratings while affirming a negative outlook.

The agency said that Cleveland-Cliffs’ recent buyback of $736 million in unsecured notes was “opportunistic” because it did not see a default likely in the near-to-medium term if the notes weren’t bought back.

L Brands trades up

Retail name Revlon’s notes diverged by the end of the afternoon, market sources said.

The 5¾% senior notes due 2021 improved by 3 points to close at 48½ bid. The 6¼% senior notes due 2024 lost 3¼ points to close at 16¼ bid.

The New York-based cosmetics producer announced Friday that it had amended and restated its debt commitment to provide for $880 million of term loans, Prospect News reported.

Of the amount, $65 million will be available as a single delayed-drawing on or after 10 days after closing until the date that is 15 business days after closing.

The amendment and restatement were done on April 27.

Amid the amendments, reports indicated that a group of lenders had alleged that the company was in default over a transaction that took place last year.

The company said it would fight the allegations as it completes its debt rework efforts.

Columbus, Ohio-based department store name L Brands’ issues tracked higher.

The 6¾% senior notes due 2036 shifted up ½ point to close at 74 bid.

Hertz notes mixed

Elsewhere, Hertz’s notes saw mixed activity, traders said.

The 6¼% senior paper due 2022 gained 1 point to close at 21½ bid. The 5½ senior notes due 2024 shed 7¼ points to close at 14½ bid.

This week, the Estero, Fla.-based car rental company’s structure sunk further into negative territory after announcing Wednesday that it would forego interest payments related to its vehicle leases.

The company has been holding talks with creditors and banks to avoid a bankruptcy filing.

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