Distressed energy bonds lower despite steadying crude price; converts manage to hold their own

By Paul Deckelman and Rebecca Melvin

New York, Jan. 13 – Amid a generalized retreat on Wednesday in the high-yield market, junk’s most distressed sector – energy issues – was seen by traders leading the downside ride – even though domestic crude oil prices seemed to steady after a long drop, posting their first gain for the year, albeit a small one.

That was not enough to help the likes of Oasis Petroleum Inc., whose 2022 notes were both the day’s most active issue and its biggest loser.

Other familiar downside names from that same oil and natural gas exploration and production company sector included Chesapeake Energy Corp., California Resources Corp. and EP Energy Corp.

Companies providing services to the E&P companies, such as Weatherford International plc and Transocean Inc., were also lower.

The weakness carried over into non-energy names as well. One such loser was metals mining company FMG Resources.

Over in the convertibles market, however, energy paper held up better than high-yield straight debt, traders said.

Chesapeake’s convertibles and those of Cobalt International Energy Inc. were unchanged, for example.

SunEdison Inc.’s complex of eight convertibles issues – some of them thinned by last week’s exchange deal – was not trading much despite a decline in the company’s shares and news that David Tepper of Appaloosa Management has filed a lawsuit to prevent the solar technology company from buying Vivint Solar Inc. and funneling some of those assets to its yieldco.

Oasis gets burned

Traders said that the broader junk bond market was lower on Wednesday, in line with a steep fall in equities – the bellwether Dow Jones Industrial Average plummeted by 364.81 points, or 2.21%, to close at

16,151.41 – nearly 1,300 points below where it had finished out 2015 two weeks ago. It was the Dow’s first loss after two straight gains, but also its fourth in the last six sessions. Other, broader market indexes were seen moving in the same trajectory.

Against that somber backdrop, junk was in retreat.

A trader said that “as far as the big movers go, it was all energy.”

Houston-based exploration and production operator Oasis Petroleum in particular “took it on the chin.”

He saw its 6 7/8% notes due 2022 fall by as much as 13½ points in intraday dealings, bottoming at the 43½ bid level, “and they were one of the volume leaders, very heavy trading.”

He saw the company’s 6½% notes due 2021 down between 9 and 10 points on the day at 48 bid.

A second trader saw the Oasis 2022s later in the day down 7½ points on the session at 50¼ bid.

At another desk, a market source pegged the bonds at 49 bid, down 8¾ points on the session, with a market-leading volume of more than $31 million.

Oasis’ 7¼% notes due 2019 finished at 60¼ bid – down more than 4 points from Tuesday’s last odd-lot trading level, but down over 10 points on a round-lot basis. Over $13 million of the notes traded.

Oasis 6 7/8% notes due 2023 nosedived 13 points to 44½ bid, but with only a handful of large-sized trades.

Traders did not see any particular negative news out about Oasis that would account for the credit falling further and faster than other energy-sector peers.

Its New York Stock Exchange-traded shares finished off by 47 cents, or 7.91%, at $5.47. Volume of over 17 million shares was nearly double the norm.

Energy on the slide

Oasis was not the only energy issue to be falling on Wednesday, though its plunge was the most pronounced.

“All of the oil and gas guys were down,” a trader said, – even though crude oil prices, which had been the key driver of the sector’s fall over the past week, seemed to be a little better on Wednesday.

While the February contract for international benchmark crude grade Brent oil suffered its eighth consecutive decline and its ninth loss in the last 10 sessions, falling by 74 cents per barrel, or 2.4%, to settle in at $30.12, its U.S. domestic counterpart, West Texas Intermediate crude for February delivery finally broke out of its slump after seven straight losses. WTI ended up by 4 cents per barrel, settling at $30.48 on the New York Mercantile Exchange. It was WTI’s first gain of 2016.

But that improvement had little impact on the bonds of energy E&P names, such as Oasis Petroleum, or California Resources Corp.

The trader saw Los Angeles-based California Resources’ 6% notes due 2024 down 1 1/8 points on the session, ending at 26 3/8 bid.

Another trader saw those bonds at around that same level, on volume of more than $15 million.

He saw the company’s 8% notes due 2022 down 2½ points, ending at 45¼ bid, with over $22 million of the notes changing hands.

Oklahoma City-based Chesapeake Energy’s 8% notes due 2022 had one of the smaller losses in the sector – less than ½ point on the day. That left the notes at 47 bid, on volume of more than $23 million.

Houston-based EP Energy, on the other hand, “can’t seem to get out of its own way,” a trader said, pegging its 9 3/8% notes due 2020 at 44½ bid, down 7½ points, with over $12 million traded.

“They’ve just been going down by multiple points each day,” he said. “On Monday, they were at 57½, then at 52 yesterday [Tuesday], and now 44½.”

Oilfield service names off

Another part of the energy sector – oilfield services companies – were suffering along with the E&P operators who make up their client base.

Several traders saw Weatherford International’s paper lower; one exclaimed “Yikes,” at the 5 point drop in its 9 5/8% notes due 2019, which took them down to 88 bid. “They were trading a ton of times,” he said.

“A lot of those WFT’s were really off today,” he said, seeing the company’s 4½% notes due 2022 slide by 4½ points to 68 7/8 bid.

Transocean’s 6% notes due 2018 were down 2½ points at 81 bid, with over $11 million traded.

Fortescue bonds beaten down

In the commodities sector, apart from oil, metal mining credits were among the weaker names.

Australia-based iron ore miner Fortescue Metals Group’s 6 7/8% notes due 2022 “were off over 2 points,” ending at 53 bid, a trader said.

He also saw its 9¾% notes due 2022 off 2½ points at 84¼ bid.

“It looks like they were trading pretty heavily,” he said.

SunEdison 5% trades at 76

In the convertibles market, SunEdison’s 5% convertibles due 2018, of which $225 million priced in an exchange last week, traded at 76 on Wednesday, a trader said.

But overall there wasn’t much SunEdison in trade, sources said.

“There aren’t any of those trading over $1 million bonds,” a New York-based trader said of SunEdison at late morning.

“There’s a lot of risk there, and I think clarity is wanted, so not many people would make those,” the trader said.

Later a trader said that much of the SunEdison paper was now quoted in a 26 bid, 28 offered context.

SunEdison’s shares shed another 21 cents, or 7%, to $2.81, extending a 9.5% loss registered on Monday.

SunEdison’s new 5% convertible due 2018 was issued last week in exchange for parts of the existing convertibles.

SunEdison – a Maryland Heights, Mo.-based renewable energy company – said that it is raising $725 million of secured terms loans and reducing $740 million of convertible debt via an exchange agreement involving a new convertible note and stock.

On Tuesday, SunEdison’s 2.75% convertibles due 2021 traded down to 33.375 from about 35.

Also SunEdison’s 6.75% perpetual convertible preferred, which priced in August, was indicated down to about 217 from 247.50 on Tuesday.

SunEdison’s 2.625% convertibles due 2023, 3.375% convertibles due 2025, 2.375% convertibles due 2022, 0.25% convertibles due 2020 and 2% convertibles due 2018 were not heard in trade.

On Friday, analyst Gordon Johnson of Axiom Capital Management told Prospect News that the new funds and exchange deal were not adequate to address SunEdison’s debt and that the company would likely have to follow up with additional measures.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.