Distressed energy retreats on lower oil prices; Ensco, Intelsat up; Community Health continues climb

By Colin Hanner

Chicago, Dec. 6 – Oil retreated for the first time since the Organization of Petroleum Exporting Countries reached a supply cut agreement last Wednesday, bringing with it several distressed bonds during Tuesday’s session.

Oil came off its highest levels in more than a year on Tuesday, fueled by speculation on not only how supply cuts will be implemented under the new Organization of Petroleum Exporting Countries accord, but on whether non-OPEC countries will agree to cuts during meetings later this week, as well as crude output figures for the month of November.

And with the news came the retreating of regularly traded distressed energy bonds, including California Resources Corp. and Denbury Resources Corp.

Ensco plc announced it will privately exchange outstanding notes for a new issue, prompting increases in several of the company’s bonds.

For the third-straight session, Community Health Systems Corp. saw gains in several of its distressed notes.

“[Community Health] continues to go onward and upward,” a trader said.

Mirroring the upward trends was Intelsat SA, which, a day after it agreed to exchange three sets of senior notes for a new issue bond, continued to see gains.

Bonds retreat with oil’s decline

Since last Wednesday, oil futures have been rising after OPEC reached an agreement to cut supply for its member countries.

On Tuesday, the momentum finally cooled as speculation surrounded the implementation of the deal, as well as how non-OPEC countries would answer at supply cut talks of their own this week.

On top of speculation were concrete figures released by OPEC, which showed that three African countries had boosted output in November. Production was up to 34.16 million barrels per day, up from 33.96 million barrels per day the month previous.

At the close of the bond market, West Texas Intermediate crude was down $1.02, or 1.97%, to $50.77, while Brent crude was down $1.16, or 2.11%, to $53.78.

In the distressed arena, California Resources’ 8% notes due 2022 were down ½ point to 88, a trader said.

Plano, Texas-based petroleum and natural gas explorer Denbury Resources’ 4 5/8% notes due 2023 were down ½ point to 81¼.

Memorial Production Partners LP, an oil and natural gas explorer and developer, saw a 2-point decrease in its7 5/8% notes due 2021, which settled with a 42 handle, a trader said.

Deepwater drilling contractor Diamond Offshore Drilling, Inc.’s 4 7/8% notes due 2043 were unchanged at 72.

Ensco and energy round up

Rising above the oil and oil-related receding tide were Ensco plc’s 5¾% notes due 2044, which a market source said were up ½ point to 75½.

The offshore driller announced on Tuesday that it will privately exchange outstanding notes for Ensco’s newly issued 8% senior notes due 2024 and cash. The 5¾% notes due 2044 were not included in the offer.

The company’s 4.7% notes due 2021, which were one of three notes included in the offer, were up 1½ points to 95, a market source said.

Ensco began private exchange offers for its $683,065,000 of outstanding 4.7% senior notes due 2021, subsidiary Pride International, Inc.’s $438,013,000 of outstanding 8½% senior notes due 2019 and Pride’s $680,766,000 of outstanding 6 7/8% senior notes due 2020, according to a company news release.

The notes are listed in order of acceptance priority level.

Ensco is offering the new 8% notes and up to $500 million of cash, exclusive of accrued interest, in exchange for the notes.

Electric company Dynegy Inc.’s 7 5/8% notes due 2024 were up for a second straight session, a 2¼-point increase to 89½ on “a bunch of trades,” a market source said.

‘Onward and upward’

The Franklin, Tenn.-based hospital operator and healthcare service provider Community Health Systems continued its third-straight day of gains on Tuesday in distressed-land.

A trader saw the 5 1/8% notes due 2021 up 1 point to 92¼ on “heavy volume,” as the 6 7/8% notes due 2022 followed with a slightly better 1½-point increase to 70½.

The 8% notes due 2019 were up 2 points to 86¼, the trader said.

On Tuesday, Community Health Systems and wholly owned subsidiary CHS/Community Health Systems, Inc. entered into a second amendment to their credit agreement on Monday with administrative agent Credit Suisse AG, according to an 8-K filing with the Securities and Exchange Commission.

The amendment revises certain financial covenants, dictating that the company must maintain a maximum secured net leverage ratio of 4.5 times through Dec. 31, 2017 and 4 times thereafter.

The amendment also provides that the minimum interest coverage ratio must be 2 times to Dec. 31, 2017 and 2.25 times thereafter.

Intelsat up, again

Cementing discussions to exchange three sets of senior notes for a new issue bond on Monday lead to mixed movement in several of Intelsat SA’s distressed notes.

On Tuesday, the upward trend continued, though much more modestly.

A trader said the Luxembourg-based satellite company’s Jackson-linked 7¼% notes due 2019 were up ¾ point to 82½.

A market source said the same notes were up 1¼ points to 83.

These notes were not included in the exchange offer.

Pharmaceuticals mixed

Concordia International Corp.’s 9% notes due 2022 were down ¼ point to 44, a trader said, putting the notes down ¼ point on the week.

Valeant Pharmaceuticals International Inc.’s 5 7/8% notes due 2023 were up 1 point to 75 7/8.

Market round up

J Crew Group Inc.’s 7¾% notes due 2019 were up 2 points to 35, a trader said.

Broadcasting and outdoor advertiser iHeartCommunications evened-out its gains from Monday in its 14% notes due 2021, which were down 1 point to 38 on Tuesday, according to a market source.

And, while the telecommunication sector in the S&P 500 advanced, Avaya Inc. were down marginally in its 10½% notes due 2023, seeing a ¾-point decrease to 48¼.

Tali Rackner and Angela McDaniels contributed to this review.

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