Rowan positive despite shareholder opposition to sale; QEP pops on buyout news

By James McCandless

San Antonio, Jan. 7 – A new week in the distressed space once again focused heavily on the energy sector.

Rowan Cos. plc’s notes traded higher despite news that one of its larger shareholders would be opposing its proposed merger with Ensco plc, whose issues were mixed.

Elsewhere in energy, QEP Resources, Inc.’s paper saw a boost after news broke Monday morning of a buyout from Elliot Management.

Gains in oil futures led to commensurate improvements for California Resources Corp., Sanchez Energy Corp. and Denbury Resources Inc.’s notes.

In retail, PetSmart, Inc.’s issues were higher as the company works through its dispute with its creditors.

Sector peers L Brands, Inc. and J.C. Penney Co., Inc.’s paper also trended positive.

Rowan up

Rowan’s notes were higher at the end of the session, traders said.

The 4¾% notes due 2024 picked up ¼ point to close at 79 bid. The 4 7/8% notes due 2022 rose 3 points to close at 87½ bid.

On Monday, a large shareholder of the Houston-based contract driller announced that it would oppose its proposed $2.38 billion sale to London-based sector peer Ensco.

Canyon Capital Advisors, a hedge fund that owns a 6.3% stake in Rowan, sent a letter to Rowan’s board outlining its reasons for opposing the deal, specifically that the deal undervalues Rowan, saddles the new entity with too much debt and energy market conditions.

“This sounds like that their primary concern is getting more value from Ensco out of the deal,” a trader said.

Canyon also asserts that Rowan and Ensco’s assets conflict in key drilling areas.

Rowan’s notes sunk into distressed territory after the sale was announced in October.

Ensco’s issues were mixed.

The 7¾% notes due 2026 shed ¾ point to close at 81 bid. The 7.2% notes due 2027 added 4½ points to close at 77¾ bid.

QEP jumps

Elsewhere in energy, QEP’s paper climbed higher, market sources said.

The 5 5/8% paper due 2026 jumped up 6¼ points to close at 91¾ bid. The 5¼% paper due 2023 gained 2¼ points to close at 94½ bid.

News broke Monday morning that the Denver-based oil and gas driller had received a $2.07 billion all-cash acquisition offer from Elliot Management.

The company stated soon after that it would evaluate the offer and consider any alternatives.

Elliot already owns 5% of the company’s common stock.

Oil futures up, sector gains

Meanwhile, another day of positivity for oil futures led to gains in distressed oil names.

Los Angeles-based independent oil and gas producer California Resources’ notes were gaining. The company continues to be a bellwether for the sector.

The 6% notes due 2024 rose ¾ point to close at 67 bid. The 8% notes due 2022 gained 1 point to close at 78 bid.

Houston-based producer Sanchez Energy’s 6 1/8% notes due 2023 added 2 points to close at 21¼ bid.

Houston-based peer Denbury’s paper was another oil name to benefit.

The 6 3/8% paper due 2021 trended up 1½ points to close at 76 bid. The 5½% paper due 2022 rose 2½ points to close at 66 bid.

At the end of the Monday session, West Texas Intermediate crude oil futures for February delivery gained 56 cents, closing out at $48.52 per barrel.

North Sea Brent crude closed at $57.33 per barrel with a 27-cent gain.

“If futures clear 50 again, people should start to feel better about energy,” a trader said. “Those mergers and buyouts will look a little more favorable.”

PetSmart, retail higher

In the retail space, PetSmart’s notes were improving, traders said.

The 8 7/8% notes due 2025 gained 1¼ points to close at 63¾ bid. The 5 7/8% notes due 2025 also picked up 1¼ points to close at 78¼ bid.

Last week, news broke that the Phoenix-based pet supply company and the agent for its creditors, Wilmington Trust, were in another gridlock over disclosure demands in court.

At the center of the legal dispute is PetSmart’s private equity transfer of e-commerce segment Chewy.com last year.

Columbus, Ohio-based sector peer L Brands’ issues were also up.

The 5¼% notes due 2028 added 1¼ points to close at 87¼ bid. The 6¾% notes due 2036 were up 1¼ points to close at 84½ bid.

Plano, Texas-based department store chain J.C. Penney’s 8 5/8% paper due 2025 rose ½ point to close at 56 bid.

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