Hexion notes spike on company split-up rumors; distressed energy names lead trading as oil futures decline

By James McCandless

San Antonio, Feb. 9 – Traders said that much of the distressed debt market remained relatively subdued outside of the energy sector Friday, as many investors are reluctant to come off of the sidelines after a volatile week in the equity market.

Notes in Hexion Inc. saw heavy trading on rumors that sponsor Apollo Global Management is considering a split-up of the company.

California Resources Corp. issues entered a second day of high activity, reacting to Wednesday’s news that the company is partnering with investment firm Ares Management in a $750 midstream joint venture.

Another 2 point loss in oil futures led to high volume activity in distressed oil and gas paper. Northern Oil and Gas, Inc., EP Energy, Inc., and Rex Energy Corp. were some of Friday’s most active names.

Frontier Communications Corp. and Intelsat SA stayed atop the telecom space, as Community Health Systems, Inc remained heavily favored in the healthcare sector.

Hexion active on split rumors

Columbus, Ohio-based chemical name Hexion saw its notes take a jump in activity on rumors that private equity firm Apollo Global Management, the company’s sponsor, was contemplating a split-up of the company, a market source said.

“If they sell some of the business it’ll mean an influx in cash,” a trader said. “It doesn’t look like they’re talking about refinancing the bonds, which explains why they didn’t pop up too high. But to pop up at all in the face of heavy ETF selling means it’s a good day for them.”

The 9% notes due 2020 rose 3¾ points to end at 81 bid. The 6 5/8% notes due 2020 rose 1¾ point to close at 92 bid.

California Resources issues active

Issues in Los Angeles-based oil and gas producer California Resources closed the week active again, according to a trader, still reacting to Wednesday’s news that it had entered a $750 million deal with investment firm Ares Management made up of common and preferred equity interests. The firm also purchased 2.34 million shares of common stock in a $50 million private placement deal.

The 6% issues due 2024 rose slightly to close just below 69 bid. The 8% notes due 2022 fell off 6 points to end the week at 79 bid.

Oil drives energy names

Precipitated by another fall in crude oil futures, market sources said that distressed energy names made up a lot of Friday’s activity.

Minnetonka, Minn.-based oil and gas name Northern Oil and Gas paper ended the week in high volume after announcing plans for a note exchange last week that included other plans for new equity and management changes.

The 8% paper due 2020 lost ¼ point to close at about 86¾ bid.

Houston-based oil and gas producer EP Energy also saw a bump in activity. The 7¾% issues due 2022 traded up almost 3½ points to close at 75½ bid. The 6 3/8% issues due 2023 shaved off 1 point to close at 62 bid.

Notes in State College, Pa.-based natural gas name Rex Energy remained in freefall, market sources confirmed. The company is in talks with advisers for a committee of holders of its senior notes on a potential restructuring, financing, refinancing and other transactions. The company also recently submitted a non-binding restructuring proposal.

The 8 7/8% notes due 2020 fell 21¾ points to close at about 10¼ bid.

Volume favorites trade

Norwalk, Conn.-based wireline telecom Frontier Communications issues closed another active week on a run attributed to recent positive news that the company had finalized positive changes to its credit agreements.

The 7 5/8% issues due 2024 rose 1½ point to close at about 60 ¾ bid. The 10½% issues due 2022 traded up ¾ point to end the week at 79¼ bid. The 11% issues due 2025 edged up ¼ point to close at 73¾ bid.

Luxembourg-based satellite communications company Intelsat’s bellwether 5½% issues due 2023 rose ¾ point to end the week at just above 76½ bid.

An end of the week hike in activity for Franklin, Tenn.-based hospital operator Community Health Systems saw the 7 1/8% notes due 2020 lose ½ point to close at 85 bid while the 6 7/8% notes due 2022 fell more than 2 points to end just below 64 bid.

“For most of the week, people were on the sidelines,” a trader said. “There was some more buying today. I think next week more people will start to dip their toes back in the water.”

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