Halcon Resources plans second debt-for-equity exchange, bonds up; FMG gives update, debt rises

By Stephanie N. Rotondo

Phoenix, April 16 – A sixth day of consecutive gains in oil prices helped spur the distressed energy space upward in Thursday trading.

Halcon Resources Corp., however, was the only oil and gas name to have specific news out during the session, as the company announced a second debt-for-equity exchange.

The news pushed the company’s bonds up in “very active” trading, a trader said.

Elsewhere in the commodity realm, FMG Resources sought to assure investors that it could weather the current slump in iron ore prices. The attempt appeared to work, as those bonds were also trending higher on the day – even despite a rating downgrade.

Halcon rises on exchange

Halcon Resources said in a regulatory filing on Thursday that it was exchanging nearly $71 million of its 9¾% notes due 2020 for common stock.

The news comes about a week after the company made a similar arrangement with funds managed by Franklin Investments Inc.

Investors took the latest news well, pushing up the company’s debt by nearly 3 points on the day.

A trader saw the 9¾% notes at 84¼, up 2¾ points. The 8 7/8% notes due 2021 put on 2½ points, closing at 82½.

The Houston-based oil and gas company said it had entered into an agreement with funds and accounts managed by Goldman Sachs Asset Management LP to exchange the notes for about 38.8 million shares of common stock, indicating an exchange price of $1.82 per share.

The exchange price was about 4% less than the closing stock price (NYSE: HK) of $1.90.

On April 7, the company made a similar agreement with Franklin Investments, exchanging $116.5 million of the 9¾% notes for about 65.5 million shares.

The exchange price on that transaction came to $1.78 per share.

FMG pushes up

In an operations update on Thursday, Australian iron ore mining company FMG Resources said that it had a strong cash balance and that it was taking other actions to insure that it would weather the current storm in the market.

Investors seemed appeased by what they heard and the bonds reacted positively.

A trader saw the 6% notes due 2017 rising 1½ points to par, while the 6 7/8% notes due 2022 improved 3 points to 72¼.

The 8¼% notes due 2019 closed up nearly 2 points at 82¼.

At another shop, a market source pegged the 6% notes at 100.25 bid, up a deuce.

At the end of March, FMG had a cash balance of $1.8 billion, up from $1.6 billion at the end of December. The company said it expects to hold on to a majority of that cash through the first quarter, as it looks to rapidly cut costs.

Net debt was meantime lower than the previous quarter at $7.4 billion.

Should prices remain weak and cost-cutting efforts prove futile, “there is a plan B, C and D,” Nev Power, chief executive officer, said during the update.

But despite the positive comments from the company, Moody’s Investors Service did not necessarily agree that the company could withstand current pressures in the iron ore market.

As such, the rating agency cut the company’s corporate family rating to Ba2 from Ba1.

The outlook is negative.

Among other metals miners, a trader saw Thomson Creek Metals Co. Inc.’s 7 3/8% notes due 2018 finishing at 86, up 4 points from a week ago.

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