CalRes, other energy names off as crude oil gets crushed; telecoms, others weaker, Venezuela gyrates on downgrade

By Paul Deckelman

New York, Nov 14 – Energy names such as California Resources Corp., EP Energy Corp., MEG Energy Corp. and Denbury Resources Inc. fell sharply on Tuesday, as did marine energy driller Transocean, Inc. as world crude oil prices were crushed after the International Energy Agency issued a bearish report on anticipated global oil demand.

Hexion Inc.’s notes firmed in active trading after the specialty chemicals company reported a sales surge in the third quarter and expressed optimism on its debt repayment prospects.

Overall, though traders in distressed debt and the in the bonds of other underperforming companies and sectors said that it was another down day in their market, mirroring continued weakness in the broader high-yield bond arena.

Losers included telecom operators Frontier Communications Corp. and CenturyLink, Inc., as well as retailers Rite Aid Corp. and J.C. Penney Co. Inc.

In the emerging markets space, Venezuela’s sovereign debt and the bonds of its Petroleos de Venezuela SA state oil monopoly gyrated around after an S&P downgrade of the country’s ratings following a default on several of its bond issues.

Existing Valeant bonds retreat

Valeant Pharmaceuticals International Inc. priced a $750 million add-on to its existing 5½% senior secured notes due Nov. 1, 2025 on Tuesday, with the regularly scheduled forward calendar issue coming to market at par.

The Laval, Que.-based drug manufacturer’s existing 5 7/8% senior unsecured notes due 2023 – which rank below the new notes in the capital structure – were seen down by more than ¾ point, at 85 3/16 bid, on volume of around $14 million.

Its unsecured 6 1/8% notes due 2025 were down more than ½ point at 84½ bid, on volume of over $11 million.

Energy issues drop

Market participants saw the various energy-related issues taking it on the chin Tuesday, after the International Energy Agency issued a report warning that demand for crude oil would likely fall from previously anticipated levels for the remainder of this year and on into next year.

The IEA lowered its demand forecast by 50,000 barrels per day for the remainder of this year, to 1.5 million, and slashed its forecast for demand next year by 190,000 barrels per day, to 1.3 million.

That, in turn, sent crude prices tumbling, with December-contract West Texas Intermediate plunging by $1.06 per barrel on the New York Mercantile Exchange, settling in at $55.70, while North Sea Brent for January delivery likewise slid by 95 cents per barrel in Tuesday futures trading in London, ending at $62.21.

A trader said that bellwether energy sector credit California Resources Corp. 8% notes due 2022 “has been moving down the past few days” after hitting recent highs around the 75 bid level, and it continued to fall on Tuesday, finally bottoming at around 70 before coming off that bottom to end around 70½ bid, which he said still left it down around 1½ points on the day.

Another trader put the Los Angeles-based oil and natural gas exploration and production operator’s notes down 1¾ points at 70¼ bid, with over $49 million having traded.

Elsewhere among the energy names, Houston-based E&P operator EP Energy’s 8% notes due 2025 dropped by 2¼ points, to 67½ bid, on volume of over $27 million.

Plano, Texas-based oil company Denbury Resources’ 6 3/8% notes due 2021 ended at 71½ bid, down 1 point on the day.

Calgary, Alta.-based MEG Energy’s 7% notes due 2024 were down 1¼-point at 89 bid.

International maritime driller Transocean’s 7½% notes due 2026 lost more than 1 point to end at 102½ bid.

Telecom, retail names lower

With the overall market lower, traders said that recently embattled names continued to lose ground on Tuesday.

These included Stamford, Conn.-based wireline operator Frontier Communications, whose 10½% notes due 2022 ended at 78 1/8 bid, down 3/8 point, with over $30 million having traded.

Monroe, La.-based sector peer CenturyLink’s 6¾% notes due 2023 were down ¾ point on the day at 95½ bid.

In the struggling retailing sector, Plano, Texas-based department store operator J.C. Penney’s 5.65% notes due 2020 were down a dollar on the day at 88¾ bid, while Camp Hill, Pa.-based drugstore operator Rite Aid’s 6 1/8% notes due 2023 lost 1¼ points to end at 90½ bid.

Hexion heads higher

One of the day’s few upsiders was Columbus, Ohio-based specialty chemicals manufacturer Hexion Inc., which reported third-quarter results, including net sales of $914 million, a 12% increase versus a year ago. It also announced a $40 million cost-reduction program, aimed at restoring the heretofore money-losing company to cash-flow neutrality.

And executives announced on their conference call that the company had $310 million of liquidity at the end of the quarter, considered adequate to meet the company’s needs. They expressed confidence in their ability to repay credit facility borrowings and deal with upcoming 2020 bond maturities.

Hexion’s 6 5/8% notes due 2020 gained ¼ point, to 88½ bid, on over $19 million traded, while its 9% notes due 2020 firmed by 7/8 point, to 70 5/8 bid, with over $18 million having changed hands.

Venezuela, PDVSA bonds gyrate

Some emerging market players traded Venezuela and Petroleos de Venezuela SA bonds “flat,” or without accrued interest, on Tuesday and others traded the bonds with accrued interest after S&P Global Ratings downgraded the country’s debt to reflect a default of $200 million in coupon payments for its 7¾% bonds due 2019 and 8¼% bonds due 2024.

“In line with our criteria for timeliness of payments, we are lowering the issue ratings on these bonds to ‘D’ from ‘CC’ and the long-term foreign currency sovereign credit rating on Venezuela to ‘SD’ from ‘CC,’” the ratings agency said in a release late Monday.

Most dealers were quoting the bonds flat, but one trader said he was not doing so because the Emerging Markets Traders Association had not yet made an official ruling on the situation.

He called S&P’s rating action “irrelevant,” adding “they didn’t tell us anything we didn’t already know.”

The Venezuela sovereign and PDVSA curves traded down sharply in early action but recovered by late afternoon to only 2 points lower. Earlier the bonds had been down 6 to 7 points.

The EMTA is expected to make a determination on whether the bonds should trade flat but had not reached a consensus on the matter as of Tuesday.

Meanwhile, the International Swaps and Derivatives Association accepted a request on Tuesday regarding Venezuela’s 2019 and 2024 bonds, with a meeting slated for Wednesday. Also, Luxembourg Stock Exchange suspended the listing and trading of the two bonds due to “an event of default” on Tuesday, with the suspension to be lifted on Wednesday following a change in the trading group and the interest quoting convention from clean to dirty.

A second trader said that some of the bonds were trading flat and some were not. Those on grace periods and unpaid coupons were trading flat, the trader said.

“The bonds were off this morning and they came back up again, finishing down 2 to 3 points,” the trader said.

PDVSA’s notes due 2022 were seen 32½ bid, 35½ offered at late afternoon, according to the trader. The PDVSA 2024 notes were 24½ bid, 26 offered; the PDVSA 2025 notes were 24 bid, 26 offered. Meanwhile, the Venezuela 2022 notes were 26 offered, 28 offered, and the Venezuela 2031 notes were 25½ bid, 27 offered.

“Without a ruling from the EMTA, and ISDA opining, I am going based on the last sort of edict of the EMTA,” a trader said.

Rebecca Melvin contributed to this review

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