Chesapeake cuts dividend, bonds weaken; Consol rebounds on spinoff chatter; AMD under pressure

By Stephanie N. Rotondo

Phoenix, July 21 – Despite a rebound in crude oil prices, distressed oil and gas names continued to see weakness in Tuesday trading.

Chesapeake Energy Corp. was a notable loser of the day, as the bonds dropped as much as 5 points during the session. The losses came after the natural gas producer said it was cutting its dividend payment.

While the oil and gas space was generally softer, Consol Energy Inc. rebounded from its Monday lows. The rally was attributed to news the company’s largest shareholder was looking to monetize assets.

There was also some weakness outside of the oil and gas realm.

Advanced Micro Devices Inc. paper was in retreat following IBM Corp.’s earnings. Though IBM released numbers that were largely better than expected, the company did show a decline in revenue – a problem AMD is well acquainted with, based on its most recent quarterly results.

Meanwhile, Caesars Entertainment Corp. bonds were mixed after the parent of bankrupt Caesars Entertainment Operating Co. said it had reached a restructuring deal with second-lien creditors.

Chesapeake nixes dividend

Chesapeake Energy announced Tuesday that it was suspending its dividend payments in an effort to shore up cash.

In response, the company’s bonds were slipping.

A trader saw the 5¾% notes due 2020 trading actively, falling 2½ points to 91¾. The 6 1/8% notes due 2021 were then pegged at 87, down 5 points from a week ago, the trader said.

The 4 7/8% notes due 2022 ended at 81, off 2½ points, as the 6½% notes due 2017 dipped just half a point to 99½.

A second market source placed the 6 5/8% notes due 2020 at 92½ bid, down 2½ points.

The Oklahoma City-based oil and gas producer said cutting the dividend – a move many oil companies have taken as oil prices have dropped – would result in savings of up to $240 million a year. Those savings will then be used to develop “high quality” assets, the company said.

Chesapeake also announced that it was selling nearly all of its stake in CHK Cleveland Tonkawa LLC to FourPoint Energy LLC. Proceeds from that sale will be used to redeem preferred stock interests in the partnership, which will reduce dividend payments by $75 million per year.

Other adjacent properties are also being sold for $90 million in cash.

“We think the moves are prudent, but also signal [the company’s] concern that market weakness is likely to continue,” write Gimme Credit analyst Philip C. Adams in an afternoon comment released Tuesday.

Consol recovers

A trader said Consol Energy’s debt was rallying “after the largest shareholder urged a spinoff.”

The trader saw the 5 7/8% notes due 2022 trading “back up to the high-70s.”

Another trader said the name was “pretty active,” seeing the 5 7/8% notes at 79, a gain of 2½ points. The trader also saw the 8% notes due 2023 rising over 4 points to 86.

The bonds had dropped on Monday after the company warned that lower energy prices will likely result in a loss for the second quarter.

In addition to warning of the quarterly loss, Consol also said it was planning to write down certain oil and gas assets, due to a continued declined in Nymex forward prices.

Come Tuesday, it was reported that Southeastern Asset Management had upped its equity stake to 21.1% from 19.6% and that the firm was wanting to meet with management to discuss monetizing the gas unit.

“We believe these assets alone are worth demonstrably more than the Company's total equity capitalization today,” said Mason Hawkins, Southeastern’s chairman and chief executive officer, in a filing with the Securities and Exchange Commission.

AMD powers down

Advanced Micro Devices’ was “getting clobbered,” a trader said Tuesday.

The trader deemed the company’s bonds down 10 to 12 points since it released earnings on July 16.

He pegged the 7% notes due 2024 at 64 at the end of Tuesday’s session.

Another trader echoed that level, calling the issue off 7 points in the last week.

The second trader also saw the 7½% notes due 2022 at 66¼, down 12 points from last week.

At another desk, the 2022 paper was deemed down 5½ points on the day, trading around 67.

For the most recent quarter, AMD’s net loss was $181 million, or 23 cents per share, as revenue for the period dropped 35% to $942 million.

Net loss for the same quarter of 2014 was $26 million, or 5 cents per share, on revenue of $1.44 billion.

On an adjusted basis, the loss per share was 17 cents, in line with analysts’ expectations.

The Sunnyvale, Calif.-based chipmaker had warned earlier in the month that it would likely not meets its previous forecasts for the quarter. However, in its earnings release, it did note that revenue for the third quarter is expected to improve 3% to 9%.

But with IBM and other technology companies also experiencing weakness – IBM reported a 13.5% decline in revenue on Tuesday, its 13th consecutive decline – the market could be concerned that AMD’s forecast revenue gain might not materialize.

Caesars mixed

Caesars Entertainment’s bonds inched higher Tuesday, while its operating company bonds dipped following word that a deal had been reached with second-lien creditors.

One trader said the parent company’s 8% notes due 2020 opened at 99 bid, up from Monday’s closing levels around 98½. The paper then traded as high as 99½.

That trader also saw the 11% notes due 2021 rising a deuce to 90¾.

However, he said the opco’s 10% notes due 2018 traded up to 29¼ – which would have been a half-point gain – but then settled back to 27, a loss of 1½ points.

Another source placed the 10% notes at 27 bid, down 1¾ points.

Late Monday, the Las Vegas-based casino and hotel operator said it had inked a deal with second-lien debtholders that would give said holders a forbearance fee of at least $200 million of convertible debt “in consideration for forbearing in respect to certain alleged defaults.”

The agreement will go into effect once 50% of the debtholders have agreed to the deal.

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