Distressed bond market weakens; oil’s retreat pressures sector again; Caesars debt softens

By Stephanie N. Rotondo

Phoenix, Jan. 12 – With oil prices down over 5% in Monday trading, a distressed debt trader said that “so much of the focus continues to be on energy stuff.

“In general, our market got dragged down with what was going on with stocks and oil,” he continued.

The Dow Jones industrial average lost nearly 100 points during the first session of the week. In oil, West Texas Intermediate crude dropped $2.44, or 5.05%, to $45.92, while Brent crude declined $2.70, or 5.39%, to $47.41.

All that added up to pretty decent dips in oil and gas names, amid a good amount of trading.

There was also weakness away from the energy space. Caesars Entertainment Corp., for instance, was a bit softer on the day as second-lien creditors attempted to push the company into an involuntary bankruptcy proceeding.

Oil in retreat

The oil and gas arena remained on the radar Monday, given an over 5% decline in oil prices.

Halcon Resources Corp.’s 9¾% notes due 2020 saw “quite a bit of volume,” a trader said, seeing the paper lose nearly 3 points to close around 74¼.

The 8 7/8% notes due 2021 were meantime off over 4 points at 73¼, the trader said.

Late last week, the Houston-based independent oil and gas producer cut its drilling and completion budget for the year in half.

For the year, Halcon expects to spend between $375 million and $425 million on its drilling programs. The company had previously estimated spending of $750 million to $800 million.

Additionally, an average of two rigs will be in operation at its Fort Berthold area assets, while only one will be producing at El Halcon.

The company had initially planned on operating six rigs.

Elsewhere in the space, a trader said Linn Energy LLC’s 8 5/8% notes due 2020 were “heavily traded,” falling almost a point to 87¾.

SandRidge Energy Inc.’s 8 1/8% notes due 2022 declined 2½ points to 63½, according to the trader.

In California Resources Corp.’s three tranches priced in September, those issues were also down from Friday’s session.

A trader deemed the 6¼% notes due 2024 down 1½ points at 80¼. The 5% notes due 2020 and 5½% notes due 2021 were down a deuce, at 83 and 80 3/8, respectively.

Caesars faces court battle

A group of second-lien bondholders led by Appaloosa Investment LP sought to force Caesars into an early bankruptcy Monday.

The junior bondholders filed an involuntary petition, an attempt to thwart the company’s own plan to put its operating unit into bankruptcy, based on a deal worked out with senior bank lenders and bondholders.

Following the news, a trader said the 9% notes due 2020 were half a point weaker at 73½, while the 10% notes due 2018 slipped a touch to 14½.

In the junior bondholders’ case, the court has been asked to investigate claims that the parent company “plundered” assets from Caesars Entertainment Operating Co. Inc. in order to put millions of dollars out of their reach.

Caesars had already been planning on putting the opco into bankruptcy, though it had until Jan. 20 to do so after missing a $225 million coupon payment on its second-lien debt in December. It had been in talks with senior lenders and bondholders and said late last week that it had received enough approval from that group to move forward with its own restructuring plan.

That plan would not only put the opco into bankruptcy, it would split the unit into a two-sided real estate investment trust. The missed second-lien payment would also go unpaid and holders of junior debt would recover a fraction of their holdings via an equity disbursement.

“The plan would treat holders of second lien notes as fully unsecured, and provide them with equity that even the debtor values at a small fraction of the outstanding principal,” the group said in its court filing.

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