Chesapeake Energy bonds decline on layoff news; Bombardier boosted on Quebec leader’s comments

By Stephanie N. Rotondo

Phoenix, Sept. 29 – The distressed debt market continued to wane Tuesday and “everybody is selling everything,” a trader said.

Chesapeake Energy Corp. was notable on the day, as the company announced a round of layoffs. The move – expected to impact 15% of the company’s workforce – comes as the company and its peers have struggled amid a low oil price environment.

“Any of these commodity and mining guys are just getting clobbered,” a trader said.

In that vein, First Quantum Minerals Ltd.’s 7% notes due 2021 fell a deuce to 65¼.

“You don’t see them much lately,” a trader said.

Meanwhile, Bombardier Inc. improved after the provincial government of Quebec said it would provide financial assistance to the airplane manufacturer should that be necessary.

Chesapeake slips

Chesapeake Energy debt was “a touch softer,” a trader said, after the company announced a round of layoffs on Tuesday. The layoffs are expected to affect 15% of the workforce.

The Oklahoma City-based oil and gas producer has struggled along with its sector peers amid a low oil price environment.

The trader placed the 6 5/8% notes due 2020 around 73½.

Another trader deemed that issue off half a point at 73½. But he saw the 5¾% notes due 2023 rising almost a point to 64¾.

At another desk, the 6 5/8% notes were seen at 74¼ bid, up a touch.

Chesapeake’s convertible bonds were also falling, according to market sources.

“This stuff just blew out yesterday,” one trader noted, referring to Monday’s sell-off that was spurred in part by a hefty downturn in commodities. Come Tuesday, the 2.5% convertible notes due 2037 were down “1½ points further,” trading at 86.

The trader added that the bonds had drifted down to 87.625 from 88.75 on Monday and that it was a dealer buying up paper.

“Then they turned around and sold it at 86,” he said.

As for the 2.75% convertible notes due 2035, the trader saw no trades of size in the issue, though he saw the paper at 98.625 on Monday. That equaled about a 13.5% yield-to-put in November, he said.

While the bonds drifted down, the stock climbed up on the news, rising 8 cents, or 1.19%, to $6.79.

Chesapeake was said to be cutting about 15% of its total workforce, with the layoffs occurring at every level. The company is expected to take a one-time charge of $55.5 million in the third quarter related to payroll taxes.

Those getting the axe are reportedly receiving “generous” severance packages.

Bombardier boosted

Bombardier bonds got a boost Tuesday as the Quebec provincial government vowed to provide the airplane manufacturer financial assistance if necessary.

A market source pegged the 7¾% notes due 2020 at 84¼, up 2¼ points.

Premier Philippe Couillard said the Canada-based company was a “huge asset” to the province, despite its ongoing difficulties in getting its CSeries jet up and running.

On Friday, Bombardier said that certification tests for the CS100 – the smaller of the CSeries planes – were over 88% completed. The company believes that it is on track to put the new planes into service in the first half of 2016.

SunEdison trades

A trader said SunEdison Inc. was on the busier side in Tuesday trading, with “six different issues” hitting the tape.

The most active of the convertible notes was the 2.625% paper due in 2023 – an issue priced in May and slated to receive its first coupon payment in December.

The trader said the bonds were trading at 57.5.

“Every time you have multiple [convertible] issues at the same company, this is what happens,” the trader said of the bonds’ quick descent. “One or two [issues] is one thing, but you can’t have that many issues out and tell me everything is flying and then come back to the table for more food.”

The solar company’s stock finished off 31 cents, or 4.45%, at $6.66.

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