PG&E notes trail as equity units offered; Chesapeake Energy trades up in energy sector

By James McCandless

San Antonio, June 23 – The distressed debt market zeroed in on the utilities and energy spaces on Tuesday

PG&E Corp.’s notes trailed off by the close as the company prepares to price equity units to help fund its bankruptcy exit.

In the oil and gas sector, Chesapeake Energy Corp.’s issues moved up after receiving permission to halt production on federal land without losing assets.

As oil futures backed off of recent gains, SM Energy Co.’s paper followed as Occidental Petroleum Corp.’s and Whiting Petroleum Corp.’s issues varied.

Meanwhile, aerospace manufacturer Spirit AeroSystems Holdings, Inc.’s paper drifted into distressed territory after signaling for financial relief from lenders.

Sector peer Bombardier Inc.’s notes also saw a decline.

American Airlines Group Inc.’s issues were under pressure as the name detailed its common stock and convertible securities offerings while United Airlines Holdings, Inc.’s paper saw mixed activity.

PG&E trails

PG&E’s notes trailed off as the session concluded, traders said.

The 6.05% senior notes due 2034 lost 1 point to close at 120½ bid.

On Tuesday, the San Francisco-based utilities provider detailed plans to price $1.5 billion of $100-par three-year equity units after the market close on Thursday with price talk for a dividend of 5.5% to 6% and a threshold appreciation premium of 17.5% to 22.5%, Prospect News reported.

The units are comprised of a prepaid forward stock purchase contract and a zero-coupon U.S. Treasuries strip.

The proceeds will, in part, be used to fund the company’s exit from bankruptcy.

After receiving court approval for the exit late last week, PG&E is moving forward with plans to drum up funds for the process, recently pricing two tranches worth of $2 billion in senior secured notes.

Concurrently, PG&E hopes to raise $5.23 billion in common stock and equity unit sales.

Chesapeake up

In the oil and gas sector, Chesapeake Energy’s issues moved up, market sources said.

The 11½% senior notes due 2025 added ½ point to close at 17½ bid. The 6 1/8% senior notes due 2021 gained 1¾ points to close at 5¾ bid.

After the Monday close, news broke that the Oklahoma City-based independent oil and gas producer was given permission from the federal government to suspend operations on more than 100 federal drilling leases without having to forfeit ownership of any assets.

The company appealed for the lease suspensions in April, when headlines began to signal that it was first considering filing for Chapter 11 bankruptcy.

The exemptions for the 108 leases expire on July 1, though extensions could be granted from the Bureau of Land Management.

Last week, Chesapeake elected to forego $13.5 million in interest payments, triggering a 30-day forbearance period as it engages creditors in negotiations.

Oil names vary

As oil futures backed away from recent gains, distressed energy tranches splintered in different directions, traders said.

West Texas Intermediate crude oil futures for August delivery tapered off by 36 cents to close the session at $40.37 per barrel.

North Sea Brent crude oil futures for August delivery settled at $42.63 per barrel after a 45 cent dip.

Denver-based producer SM Energy’s paper followed futures.

The 5% senior paper due 2024 shaved off ¼ point to close at 54½ bid. The 6 5/8% senior notes due 2027 declined by 1½ points to close at 50¼ bid.

Houston-based peer Occidental Petroleum’s notes varied in direction.

The 2.9% senior notes due 2024 rose ¾ point to close at 88¾ bid. The 2.7% senior notes due 2022 climbed ½ point to close at 95 bid.

Denver-based producer Whiting Petroleum’s issues also took different tracks.

The 6¼% senior notes due 2023 held level to close at 16 bid. The 6 5/8% senior notes due 2026 improved by 1 point to close at 16 bid.

Spirit, Bombardier drift

Meanwhile, Spirit AeroSystems’ paper drifted into distressed territory, market sources said.

The 4.6% senior notes due 2028 dived 5½ points to close at 83½ bid. The 3.95% senior notes due 2023 shed 4½ points to close at 86¼ bid.

The Wichita, Kan.-based aerospace parts manufacturer’s structure weakened after reports indicated late Monday that large customer Boeing Co. had asked it to further scale production on parts for the troubled 737 MAX airplane.

The company assembles the fuselage, engine pylons, wing components and other parts for the line that was grounded in March 2019 after malfunctions came to light.

Boeing now expects the name to produce 72 completed sets of parts, slashed from an earlier agreement of 125 sets reached in May.

“I think there is still some downside to the bonds, especially in the short term,” a trader said. “It’s on the radar now.”

Montreal-based air and rail manufacturer Bombardier’s notes also saw a decline.

The 8¾% senior notes due 2021 gave up ½ point to close at 82½ bid.

AA lower, United mixed

In a related sector, air travel name American Airlines’ issues were under pressure, traders said.

The 5% senior notes due 2022 lost 2½ points to close at 68½ bid. The 3¾% senior notes due 2025 moved down 2¾ points to close at 56½ bid.

During the Tuesday session, the Fort Worth-based airline’s structure was under pressure as it detailed its common stock and convertible notes offerings to raise capital to sustain itself through the pandemic.

The company said that it would sell 74.1 million in additional common stock at $13.50 per share.

Concurrently, the airline priced an upsized $1 billion offering of five-year convertible notes after the market close on Monday, Prospect News reported.

Recently, American Airlines accepted $5 billion in federal emergency loans using its loyalty program as collateral.

Chicago-based peer United Airlines’ paper ended with mixed results.

The 5% senior notes due 2024 tacked on ¼ point to close at 86¾ bid. The 4¼% senior paper due 2022 closed level at 89½ bid.

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