Market sees ‘big reversal’; Affinion falls post-downgrade; oil and gas mixed on crude increase

By Stephanie N. Rotondo

Phoenix, Oct. 2 – A trader said the distressed debt market experienced a “big reversal” on Friday.

“It was down, then it was up,” he said.

Still, the trader said there weren’t many big price changes.

“Nothing really went wild,” he said.

And while the market had a firmer tone overall, “some stuff was definitely pretty heavy.”

Affinion Group Holdings Inc. was one such name, according to a trader.

The trader said the 13½% senior subordinated notes due 2018 were off 10 points at 41, though he said the 7 7/8% notes due 2018 were steady at 72 bid, 73 offered.

However, a second trader deemed the latter issue “a little lower,” trading with a 72 handle.

The Stamford, Conn.-based marketing company announced a debt-for-equity swap on Wednesday. Under the terms of the deal, Affinion intends to exchange about $260.5 million of its 13¾%/14½% senior secured PIK toggle notes due 2018 and about $360 million of the 13½% notes.

Additionally, holders of those notes will be able to participate in a rights offering for up to $110 million of 7½% cash/PIK senior notes due 2018 and 2.48 million shares of common stock.

Under the terms of the exchange, the PIK notes can tender their holdings for 7.15066 shares if tendered before the consent deadline – 11:59 p.m. ET on Oct. 13 – or 6.15066 if tendered after the deadline.

Holders of the 13½% notes will get 15.52274 shares if tendered before the consent deadline or 14.52274 if tendered after.

The offer expires 11:59 p.m. ET on Oct. 27.

As of Tuesday, 86% of holders had agreed to tender their holdings. The exchange is contingent upon holders agreeing to amend certain consents and that at least 95% of each series of notes are tendered.

The deal is also contingent on the rights offering being completed.

Come Friday, Standard & Poor’s cut its rating on the company to CC from CCC+. The rating agency said the changes were due to the exchange offer, which they consider to be a distressed exchange and equal to a default.

Oil and gas mixed

The oil and gas sector finished the day in mixed fashion, even as domestic crude oil prices improved amid declining fears related to Hurricane Joaquin.

Oil prices also got a bump up as Baker Hughes said the number of actively producing oil drill rigs fell by 26 – the fifth straight week of declines and the largest drop seen since April.

West Texas Intermediate crude improved by 2.26% on the day.

A trader said there wasn’t much follow-through in Chesapeake Energy Corp., whose bonds got hit on Thursday after the company said it had secured an amendment on its revolving credit facility. The amendment allows for, among other things, the issuance of up to $2 billion of junior debt.

“It was quiet,” he said of the name. “And mostly unchanged. There was not a lot of action compared to yesterday.”

However, the trader also noted that EP Energy’s 6 3/8% notes due 2023 were off 5 points at 66. California Resources Corp. was another weak one, he said, as the bonds ended “off a couple [points] across the board.”

He placed the 5½% notes due 2021 at 59½. Paper had been above 60 on Thursday.

At another desk, however, a market source saw strength in the oil and gas space.

The source said Linn Energy LLC’s 7¾% notes due 2021 rose over a point to close at 22 bid. Consol Energy Inc.’s 8% notes due 2023 were meantime seen nearly a point better at 73¼.

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