Energy XXI declines after oil rig fire; Magnum Hunter ends weaker; Ocwen notes under pressure

By Stephanie N. Rotondo

Phoenix, Jan. 23 – It was again a firm day in the distressed debt realm on Friday, but there were a few names that were driven lower following news.

Energy XXI Gulf Coast Inc. saw its bonds decline rather heavily after it was reported that one of its oil rigs in the Gulf of Mexico had caught fire.

Meanwhile, Magnum Hunter Resources Corp. held an investor call Friday to discuss how the current trend in oil prices will impact its bottom line. By the end of the day, the company’s bonds were weaker.

The moves in both of those names came as oil prices gyrated throughout the session – due at least in part to the death of Saudi King Abdullah.

West Texas Intermediate crude, however, ultimately ended softer, losing 88 cents, or 1.9%, to $45.43 per barrel. Brent crude rose 16 cents to $48.68.

Abdullah was immediately succeeded by Salman Bin Abdulaziz Al Saud. As the new king took his throne, Prince Alwaleed Bin Talal indicated that Salman would maintain his predecessor’s policies – i.e. the oil-producing nation and OPEC member would not cut its output in the face of lower prices.

“If we reduce our production some other countries will fill that gap,” Alwaleed said in an interview with Bloomberg on Friday. Though the country is not thrilled with pricing at current levels, “it’s something you have to face head on without hesitation.”

Alwaleed also speculated that the days of oil prices over $100 were a thing of the past.

Away from oil and gas names, Ocwen Financial Corp. took a fall as one of the mortgage servicer’s subsidiaries was served with a default notice.

Energy XXI bonds decline

Energy XXI’s debt got hit Friday as one of its unmanned oil rigs in the Gulf of Mexico caught fire.

One trader said that the “short-dated paper got hit the most,” seeing the 8¼% notes due 2018 in a 59 to 60 context.

That was down from 66 in early trading.

The 9¼% notes due 2017 meantime traded “either side of 50,” down from 56.

A second trader said the 8¼% notes ended off almost 6½ points at 60 1/8, while the 7½% notes due 2021 fell almost 3 points to 40.

He pegged the 6 7/8% notes due 2024 at 41, off just a quarter-point.

Federal regulators planned to inspect the damage done at the platform, which was probably a result of getting hit by a passing vessel. The fire – which took place about 5 miles south of Port Fourchon, La. – was extinguished and no one was hurt.

The Houston-based offshore oil producer reportedly said that there was no oil spill but that natural gas bubbles could be seen coming to the water’s surface.

“Oh boy, that’s not good,” a trader said.

Magnum Hunter down

Magnum Hunter Resources’ 9¾% notes due 2020 were lower Friday as the company held a conference call “to discuss recent macro-economic and other global events and trends affecting the energy sector in general, including their general influence on Magnum Hunter's business and operations,” according to a press release.

A trader deemed the debt off 3½ points at 69½.

Earlier in the week, the company reported that its proved reserves had increased 25% year over year. That was also a topic to be discussed on the call.

But following that announcement, Standard & Poor’s took negative action on the company’s ratings, lowering it to CCC+ from B-.

The rating agency said it believed EBITDA would not be sufficient to cover interest expenses and capital expenditures. S&P also noted that Magnum’s liquidity position could come under pressure.

Ocwen faces default trouble

Ocwen Financial debt was weaker Friday following news that the company had been issued a notice of default.

A trader said the 6 5/8% notes due 2019 closed at 77, down from opening levels in an 84 to 85 zip code.

The term loan dropped to 93½ bid, 94½ offered from 94 bid, 95 offered as an accusation emerged that defaults existing under Ocwen Loan Servicing, LLC’s indenture for series 2012-T2 and series 2013-T3 notes issued in connection with the HLSS Servicer Advance Receivables Trust (HSART Trust), according to a trader.

The accusation came from BlueMountain Capital Management LLC, the investment manager of funds that hold some of the notes.

BlueMountain claimed that Ocwen breached covenants to comply with applicable laws and requisite servicing obligations, breached a warranty in the senior secured term loan agreement and a subsequent amendment that it is not in violation of any law that could reasonably be expected to cause a material adverse effect on its business and financial condition, and failed a collateral test.

Additionally, BlueMountain says the default should trigger early amortization and a 3% increase in the interest rate on the notes.

Ocwen is an Atlanta-based servicer and originator of mortgage loans.

Sara Rosenberg contributed to this article

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