Distressed bonds falter as crude drops; oil and gas, retail sectors dip; iHeart takes hit

By Stephanie N. Rotondo

Seattle, Dec. 11 – As crude oil prices took another hefty tumble on Friday, so did the distressed debt market.

“The market was just down today, period,” a trader said. “It was just getting beat up.”

“Everything was heavy today,” said another trader, deeming the market off at least 1 to 1½ points on the day. “Oil and metals and all that kind of stuff were really whacked.”

Domestic crude prices declined over 3.5% on Friday, closing at $35.45, the lowest level seen in seven years. The significant drop came as the International Energy Agency said a global oversupply could worsen come 2016.

The market was so focused on supply concerns that it shrugged off the latest report from Baker Hughes, which showed that the U.S. active drill rig count fell by 21 to 524 last week.

It was the fourth consecutive week that the rig count diminished. Hughes also noted in the report that the number of active rigs was down 67% from October 2014.

But as crude waned, so did oil and gas bonds.

Chesapeake Energy Corp. – which had been rebounding in the last couple of sessions – resumed its descent on Friday. A trader said the 5¾% notes due 2023 closed in a 30 to 31 context, down from 33 on Thursday.

A second trader saw the bonds closing at 30½, off 2½ points.

Another trader saw Oasis Petroleum Inc.’s 6 7/8% notes due 2022 falling nearly 2 points to 76.

“That one has been very active for the last several days,” the trader remarked.

Oil and gas wasn’t the only sector to get hit.

“Retailers keep getting beat up,” a trader said.

The trader said Claire’s Stores Inc.’s 9% notes due 2019 finished down “a few more [points]” in a 63 to 64 ZIP code. Toys ‘R’ Us Inc. paper also “got whacked,” he said.

Toys’ 10 3/8% notes due 2017 closed at 70, the trader said, down from prints with a 73 handle late Thursday.

Another market source pegged Toys’ 7 3/8% notes due 2018 at 55 bid, down 2½ points.

iHeart retreats

iHeartCommunications Inc.’s bonds were meantime trading actively but lower with the rest of the market, according to market sources.

However, the weakness was attributed to news reports indicating the San Antonio-based multimedia company was looking to convert most of its $2.4 billion in unsecured debt into equity.

“Guys weren’t necessarily pleased that they are using money to buy back junior debt,” a trader said.

The New York Post first broke the story on Thursday, citing unnamed sources. The article said that if the company follows through on that proposal, it would slash its annual interest payments by more than $100 million, which would make the company cash-flow positive.

That in turn would help the company restructure the remainder of its $21 billion in debt.

A trader said the 14% notes due 2021 ended with a 29 handle on Friday, down from levels in the low-30s seen on Thursday. The 9% notes due 2021 meantime drifted down to a 64½ to 65 context from a 68 ZIP code.

At another desk, the 14% notes were pegged at 29¾, down nearly 2 points on “pretty good volume.” The 9% notes were seen at 64½, a loss of 3½ points.

The buyback of the junior debt may not have been the only thing weighing on the name, however. Subsidiary Clear Channel Communications International BV priced $225 million of 8¾% notes due 2020 on Friday.

Proceeds from the offering will be used to make a $225 million loan to Clear Channel CV, the issuer’s indirect parent. The parent may then use the funding to repurchase debt or equity.

Intelsat loses

A trader said Intelsat SA’s bonds were “very active” on Friday, as the name declined with the rest of the market.

The trader saw the 7¼% notes due 2021 slipping over a point to 84, as the 7¾% notes due 2021 lost almost 2 points, ending at 42 3/8.

A second source deemed the 6 5/8% notes due 2022 down over 2 points at 61¼ bid.

Intelsat is a Luxembourg-based communications satellite services provider.

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