OGX Petroleo bonds see massive drop; Endeavour rises on well update; Talos Energy notes gyrate

By Stephanie N. Rotondo

Phoenix, July 10 - The distressed debt market was again mostly firm on Wednesday, though not all names were following the day's trend.

OGX Petroleo & Gas Participacoes SA, for instance, took a wallop in midweek trading, losing about 20% of its value. The decline came as it was reported that some creditors have started meeting with lawyers regarding Brazilian insolvency law.

For its part, OGX has said that it does not intend to restructure its dollar-denominated debt.

Among other oil producers, Endeavour International Corp.'s bonds were faring better after the company held an operational update conference call early in the session.

Meanwhile, Rural/Metro Corp. was seen drifting down further as chatter regarding a looming coupon payment increases. A trader remarked that a fight with the union members in upstate New York could also be playing a role in the debt's decline.

OGX takes a tumble

OGX's debt was "a good bit lower," a trader said Wednesday.

He pegged the 8½% notes due 2018 down 5 points at 20 bid, 22 offered.

"So those gave back recent gains," he said.

Another trader saw the 8½% notes at 20, also down 5 points. The 8 3/8% notes due 2022 dropped just over 4 points to also trade around 20, according to the trader.

The bonds' dip came as Bloomberg reported that some creditors had begun meeting with law firms Cleary Gottlieb Steen & Hamilton LLP and Bingham McCutchen LLP to discuss their options under Brazilian insolvency law.

Cleary Gottlieb has scheduled a conference call for such a purpose. The call will be held on Thursday.

OGX is a Brazilian oil producer majority-owned by billionaire investor Eike Batista.

Endeavour boosted by call

Endeavour International was "better after an operational update conference call," a trader said Wednesday.

He saw the 12% second-lien notes due 2018 trading up to 80 from previous levels in the low 70s.

Another market source said the issue opened with a 73 handle and closed around 80.

During the call, company executives said that its Rochelle Field in the North Sea was ready to produce as soon as the owners of the Scott drilling platform were had completed a six-week work program. First production is expected in September.

Endeavour is a Houston-based oil and gas exploration and development company.

Talos trades on well woes

A trader said that Talos Energy, LLC's 9¾% notes due 2018 were gyrating around on Tuesday and again on Wednesday, as the Houston-based oil and natural gas exploration and production company sought to contain leakage from an inactive energy well in the Gulf of Mexico about 75 miles off the Louisiana coast.

He said that the notes had traded in a mid-90s context several days ago, at bid levels between 94 and 96, but then fall to around an 89-90 area Tuesday. On Wednesday, he said, the bonds opened at 89 bid, 91 offered, moved up during the day to around 90-91 and were going out around 92-94 bid.

He said that because the notes are a 144A issue, it's difficult to get a handle on exactly how much traded, but he opined, "I saw trades all day long, which tells me that a lot of size traded." He estimated volume in a $25 million to $30 million context.

Those bond movements were going on against the backdrop of the company's efforts to contain leakage coming from an old well in the Gulf of Mexico.

Talos announced in a statement Tuesday that during operations by its Energy Resources Technology GOM subsidiary to permanently plug and abandon a non-producing well 74 miles southwest of Port Fourchon, La., salt water containing a small amount of gas and light condensate began to flow to the surface and around the wellhead.

Talos said that it notified the Coast Guard and other authorities, shut down two nearby producing wells and was bringing in a commercial well-control company to close off the leak.

The company said that it expected to have the old well shut in within a 24-hour period. Crews were reported to be still working on the well as of Wednesday afternoon. It is expected that mud will be pumped into the old well to stop the small flow of gas and liquid.

Rural/Metro widens

Rural/Metro's 10 1/8% notes due 2019 were being "quoted wide," a trader said, though actual trading wasn't much.

The trader said the issue had dropped into the low-to-high-60s. Paper had been around 70 on Tuesday, down from the low-80s last week.

The rumor mill is abuzz with talk that the company might be having trouble coming up with enough funds to make a coupon payment on July 15. A trader said he had heard that the Scottsdale, Ariz.-based provider of emergency and non-emergency services was burning through cash and that it was unable to draw from a revolving credit facility because it had already crossed certain covenants.

Additionally, the company is facing a potential strike in Buffalo, N.Y. and city lawmakers have delayed renewing their contract with the private contractor.

Paul Deckelman contributed to this article

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