California Resources bonds slide on debt swap; Chesapeake, other energy names off as crude drops

By Paul Deckelman

New York, Nov. 12 – California Resources Corp.’s bonds fell in active trading on Thursday after the oil and natural gas exploration and production company announced plans for a discount debt exchange.

The company said it would issue up to $1 billion of new seven-year secured notes in exchange for a portion of its existing 2020, 2021 and 2024 notes – with total consideration for any tendered bonds accepted by the company set at 80 cents on the dollar.

Even without the exchange offer, those California Resources bonds would have likely finished lower on Thursday in line with falling crude oil prices, which declined to their lowest levels since late August after a considerably larger than expected rise in U.S. oil stockpiles last week.

The unexpectedly big gain – more than four times what analysts were expecting – dragged such California Resources sector peers as Chesapeake Energy Corp. lower in active dealings.

In the convertibles market, solar energy technology provider SunEdison, Inc.’s recently beleaguered paper remained under pressure on Thursday, in line with a fall in the company’s shares.

Away from the energy arena, regional supermarket operator Roundy’s Inc.’s formerly distressed bonds – they had been in the mid-50s as recently as the end of October – traded actively and at considerably higher levels than previously on Wednesday’s announcement that grocery industry giant Kroger Co. will acquire Roundy’s for $178 million in cash, plus assumption of $646 million of debt.

Another type of retailer – high-end department store operator Neiman Marcus Group LLC – saw its term loan trade off amid generalized investor angst about the retailing sector, especially after competitor Macy’s released downwardly-revised full-year guidance.

California Resources slides

The news that California Resources is trying to take out some of its existing bond debt by offering new notes to the existing debtholders pushed those existing bonds several points lower, in heavy trading.

One trader saw the Los Angeles-based oil and gas E&P company’s benchmark 6% notes due 2024, down around 3 points on the session as things drew to a close, around a 65½ to 66 bid context.

“Those things were trading all day long,” he said.

At another shop, a trader estimated that almost $70 million of the notes had changed hands. He saw the bonds going home at 100 bid, 100½ offered, down around ½ point.

One of the traders saw the 5½% notes due 2021 likewise off 3 full points, just like the 2024 notes, with over $25 million having moved around in a 65 7/8 to 66½ context, while the company’s 5% notes due 2020 had dropped 5 full points to around 68½ bid on volume of over $32 million.

“That was the ugly one of the day, California Resources,” one of the traders opined.

The company said that it would issue up to $1 billion of 8% second-lien notes due 2022 to holders of the existing paper whose notes were accepted for exchange.

It will give those holders who tender their notes on or before the early participation deadline of 5 pm ET on Nov. 25 total consideration of $800 of the new notes per $1,000 principal amount of the old notes tendered and accepted under the offer. That price includes a $50 per $1,000 principal amount early participation premium.

Investors tendering their notes after the early participation deadline will receive $750 of the new bonds for each $1,000 principal amount of the old notes.

The offer expires on Dec. 10.

Energy names off

One of the traders suggested that “even if there were no exchange offer, CRC would have been off on the day anyway,” in line with a general slide in energy credits, pulled lower by sinking crude oil prices.

Another trader said that Chesapeake Energy’s paper behaved typically, with its 5¾% notes due 2023 “down around 2½ to 3 points” at about 55 bid, with over $22 million having changed hands.

He saw the Oklahoma City-based oiler’s 6 5/8% notes due 2020 trading around 61¾ bid, 62 offered, calling them down a deuce on the day, with over $22 million traded.

Chesapeake and other energy credits retreated as crude oil prices remained in freefall. December-delivery West Texas Intermediate crude swooned by $1.18, or 2.80%, settling at $41.75 per barrel Thursday on the New York Mercantile Exchange, its lowest level since Aug. 28.

Crude slid after the U.S. Energy Information Administration reported that domestic crude oil stockpiles grew for a seventh consecutive week last week – and grew at a greater rate than analysts were expecting.

The EIA said that the stockpiles increased by 4.2 million barrels during the week ended Nov. 6 – about four times the roughly 1 billion barrel increase the analysts had been looking for.

SunEdison converts off

Traders in the convertibles market meantime said that both SunEdison’s 0.25% convertibles due 2020, a $600 million issue that priced in June 2014, and SunEdison’s 2.375% convertibles due 2022, a $460 million issue that priced in January 2015, traded at 41.5 on Thursday.

That was more than a point lower on the day for the 0.25% convertibles and about flat for the 2.375% paper, according to Trace data.

SunEdison’s stock bounced intraday from a low of $4.06, up to $5.05, but the strength was only temporary and the shares dropped back for a 7.4% lower close at $4.54. On Tuesday and Wednesday, the shares fell 22% and 15%, respectively.

SunEdison’s 2.625% convertibles due 2023, or the E tranche, a $450 million issue that priced in May 2015, traded at 35.75, which is down from 43 on Tuesday when the company reported earnings, and down from the mid-50s previously.

SunEdison is known in the convertibles market as a “serial issuer,” and the company has about $3.8 billion outstanding in convertibles in seven different issues, out of a total of about $11.7 billion in debt.

The company’s securities have slid drastically since peaks hit in July.

On Thursday, the stock closed at $4.54. But it had a “huge rebound” intraday, that didn’t gain any traction.

Also on Thursday, Axiom Capital, a small broker, downgraded its rating on the shares to “sell” from “hold,” and cut its price target on the shares to $2.00 per share. Axiom analyst Gordon Johnson said the cut was late in coming because management had indicated that it was going to be able to sell projects at high margins, but these sales have not materialized.

The solar technology company, based in St. Peters, Mo., reported a wider-than-expected loss for its third quarter and unveiled some of the large expenses facing the debt-strapped company.

Roundy’s on a roll

Away from energy-related news, a trader said that Roundy’s Inc.’s bonds – which had been mired deep in distressed territory as recently as two weeks ago – were bucking the high-yield market’s overall negative trend on Thursday, having pushed up smartly on the news that the Milwaukee-based supermarket chain has agreed to be acquired.

That news – released on Wednesday, when the domestic junk market was essentially closed – produced just a handful of trades up around a 110 to 112½ bid context, more than double its last previous price of around 55 bid, recorded at the end of October.

On Thursday, the company’s bonds continued to trade very actively at the higher levels seen during Wednesday’s non-session.

One trader said that they had moved up to around 112 5/8 bid from prior levels around 112 bid, with over $28 million traded.

Cincinnati-based food retailer Kroger will pay $178 million in cash and will assume Roundy’s $676 million of outstanding debt.

Neiman Marcus loan lower

In the bank debt market, Neiman Marcus’ term loan fell to 95¼ bid, 96 offered from 97¾ bid, 98½ offered, a trader said, citing a number of factors for the movement, including generic problems in the retail sector, downward movement in the Dallas-based luxury retailer’s bonds and competitor Macy’s release of downward-revised full-year guidance – a bad omen for retailers generally.

Macy’s Inc. said on Thursday that it now expects earnings per diluted share for the full-year 2015 in the range of $4.20 to $4.30, excluding asset impairment charges associated primarily with previously announced store closings, versus prior guidance in the range of $4.70 to $4.80.

-Sara Rosenberg and Rebecca Melvin contributed to this review

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