Teekay distributions slashed, bonds plummet; Chesapeake drops; California Resources lower

By Stephanie N. Rotondo

Seattle, Dec. 18 – The distressed bond market was “generally weaker across the board but muted,” a trader reported Friday.

Still, he said that of all the high-yield activity on the day, a fair bit of it fell into the distressed space.

A bulk of that action was centered on commodity-linked issues, particularly in the energy arena.

Teekay Corp. – a Hamilton, Bermuda-based oil and gas shipper – announced Thursday that it and its subsidiaries were slashing the distribution on its various units by as much as 90%. The news resulted in hefty losses in the bonds.

Meanwhile, Chesapeake Energy Corp. debt “keeps getting beat up,” a trader said, as the company looks to complete a private exchange offer. Earlier in the week, it was reported that the Oklahoma City-based oil and gas producer had hired Evercore Partners Inc. to advise on its restructuring options.

Also in that sector, California Resources Corp. was under pressure as well. On Dec. 11, the company wrapped an exchange offer, issuing $2.25 billion of new notes in exchange for $3.65 billion of three series of other notes. The new issue – 8% senior secured second-lien notes due 2022 – have not fared well since hitting the marketplace.

The weakness in the oil and gas space was also attributed to yet another decline in oil prices. Domestic crude fell 31 cents to $34.64 a barrel after new data showed an increase in active U.S. drill rigs.

In its latest report, Baker Hughes Inc. said that the U.S. rig count increased by 17 last week, after falling 21 the week before.

The increase in rigs came after four straight weeks of declines.

Teekay dives

Teekay’s 8½% notes due 2020 fell 20 points since Wednesday, according to a trader.

The paper dropped 15 points on Thursday, he said, and another 5 points on Friday, ending around 75.

Another trader said the issue was “down a few more points” to trade in a 77 to 78 context. That compared to levels around 80 on Thursday.

“And that was down from the 90s,” the trader said.

The declines began Thursday after the company announced that the parent company and its subsidiaries would slash their distributions on the common units by as much as 90%.

“Cash flows generated by both Teekay Offshore and Teekay LNG, which largely underpin Teekay Corp.'s dividend payment, remain stable and growing, supported by large and well-diversified portfolios of fee-based contracts with blue-chip counterparties,” said Peter Evenson, chief executive officer, in a statement released Thursday.

“However, Teekay Offshore and Teekay LNG require capital to fund their growth and there is currently a dislocation in the capital markets relative to the underlying stability of our MLPs' businesses. As a result, their cost of equity has increased to the point where it is currently not an economically attractive source of growth capital.”

On Friday, Moody’s Investors Service said it would review the parent and its units for possible downgrade.

Chesapeake goes lower

Chesapeake Energy bonds remained on a downward spiral Friday.

At one desk, a trader said the 5 5/8% notes due 2020 dropped nearly 3 points to 24½, while the 3¼% notes due 2016 slipped a quarter-point to 93.

Another trader saw the 6 5/8% notes due 2020 sliding “down a couple points” to 24, as the 6½% notes due 2017 fell a similar amount to 47.

On Wednesday, the company released the results of the initial early tender deadline in its private exchange offer for 10 series of notes maturing 2017 through 2023. As of the initial deadline – which was 5 p.m. ET on Dec. 15 – $2.8 billion of the various notes had been validly tendered.

The early exchange deadline was then pushed out to 5 p.m. ET on Dec. 18.

The company intends to issue up to $3 billion of new 8% senior secured second-lien notes due 2022 in exchange for the other issues.

But the attempt to delever its balance sheet may prove to be insufficient amid the low commodity price environment. Chesapeake was said to have hired Evercore Partners to advise on further restructuring efforts on Monday.

California Resources retreats

California Resources’ new 8% second-lien notes due 2022 – a $2.25 billion issue that hit the market on Dec. 11 – has been “getting hammered,” a trader said.

The trader pegged the issue at 52, down from 55 on Thursday and 63 on Wednesday.

According to Trace data, the issue began trading on Dec. 11 after the Los Angeles-based oil and gas producer said it had exchanged $3.65 billion – or 73.07% of the outstanding principal amount – of its 5% notes due 2020, 5½% notes due 2021 and 6% notes due 2024 for the new notes. At that time, the new bonds were trading at 67, though they were priced at par.

A second trader said the 8% notes fell almost 3 points on Friday, ending at 52½. The 5% notes due 2020 slipped less than half a point to 36 1/8, he said, as the 6% notes due 2024 dipped nearly a point to 31½.

Transocean tanks

Late Thursday, it was reported that Statoil had cancelled a drillship contract with Transocean six months before said contract was set to expire.

Statoil said the cancellation was due to a lack of planned drilling activities.

In response, Transocean’s debt dropped.

A trader saw the 7 1/8% notes due 2021 at 61½, which he said was down 8 points from Monday. A second market source placed the 6 7/8% notes due 2021 at 61¼, down almost 5 points on the day.

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