FirstEnergy notes tumble on ratings downgrade; California Resources announces investment news

By James McCandless

San Antonio, Feb. 7 – The distressed debt market proved to be as volatile as the equity markets Wednesday, according to traders, with energy names continuing to lead in volume.

FirstEnergy Corp. notes declined sharply as two of the company’s subsidiaries received ratings corrections, downgrading some senior unsecured notes.

Issues in California Resources Corp. became active at the end of the day as the company announced a $750 million midstream joint venture with investment firm Ares Management.

Other energy names took much of the day’s volume space. For the second day, Northern Oil and Gas, Inc. and Jones Energy, Inc. traded heavily.

Frontier Communications Corp. and Intelsat SA remained bellwethers in the telecom space. Mallinckrodt plc continued its run of high activity while Toys “R” Us, Inc. joined the fray as the company begins liquidation sales.

FirstEnergy subsidiaries downgraded

Notes in Akron, Ohio-based electricity producer FirstEnergy fell sharply as market sources confirmed that Standard & Poor’s issued corrected ratings for three notes tied with its FirstEnergy Nuclear Generation LLC and FirstEnergy Generation LLC subsidiaries, lowering their rating and changing their recovery ratings (see related story elsewhere in this issue).

The 6½% notes due 2021 tumbled more than 6 points to close at 34¼ bid. The 6.8% FirstEnergy Solutions Corp. bonds due 2039 fell 3½ points to close at about 35½ bid. The 6.85% bonds due 2034 fell 3 points to end at 34¼ bid.

California Resources announces deal

Issues in Los Angeles-based oil and gas producer California Resources experienced more trading late Wednesday as reports confirmed that the company had entered into a midstream joint venture with investment firm Ares Management worth $750 million in common and preferred equity interests. Additionally, the firm purchased 2.34 million shares of common stock in a private placement deal worth $50 million. A trader described the issues as volatile throughout the day.

“Those bonds were up about a point until the oil numbers came out and they traded all the way back down,” the trader said. “We’ll see how bonds react tomorrow.”

The 6% issues due 2024 edged up about ½ point to close near 72¾ bid. The 8% issues due 2022 rose ¾ point to end at 83 bid.

Energy paper trades

Traders said that another day of declining oil prices led to high activity in distressed oil and gas names.

Minnetonka, Minn.-based independent oil and gas producer Northern Oil and Gas paper saw another day of high volume after last week’s announcement a plan for a note exchange, raising new equity, and management changes. The 8% notes due 2020 lost about 3 points to end near 86 bid.

Notes in Austin, Texas-based oil and gas property holder Jones Energy were mixed on the day. The company announced Tuesday would reduce borrowings and debts by making a $450 million offering of senior secured first lien notes due 2023. Market sources confirmed Wednesday that Moody’s Investor Service assigned a B2 senior secured rating to those notes and downgraded its corporate family rating, reaffirming a negative outlook (see related story elsewhere in this issue).

The 9¼% notes due 2023 gained 2 points to close just above 69 bid. The 6¾% notes due 2022 fell 2 points to close at 66 bid.

Familiar names active

Notes in the Norwalk, Conn.-based wireline telecom Frontier Communications traded down a second day as the high volume name holds its position on recent positive news about changes to its credit agreements. The 7 5/8% notes due 2024 lost more than 1 point to close at 62 3/5 bid. The 10½% notes due 2022 traded down ¾ point to close at 81¾ bid. The 11% notes due 2025 fell ½ point to close at 76 bid.

Luxembourg-based satellite communications company Intelsat’s issues saw more high volume trading. The Intelsat Jackson SA 7¼% issues due 2020 gained ¾ point to close at 86¼ bid.

Britain-based pharmaceutical maker Mallinckrodt saw a third day of high volume trading. Despite the activity, the 4¾% notes due 2023 remained level at 79½ bid.

Wayne N.J.-based toy retailer Toys “R” Us paper was active as reports confirmed that the company had begun liquidation sales Tuesday as it plans the closure of about 180 stores. The 8¾ paper due 2021 rose 4/5 point to close at 21 4/5 bid. The 7 3/8% paper due 2018 climbed about 1½ points to end at 21 1/5 bid.

“In general, it felt like there was better buying going on most of the day,” a trader said. “But a lot reversed course as the market faded at close. This market is going to take its cues from the equity market’s, just like it did today.”

© 2015 Prospect News.
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