Ensco, Rowan notes rise on merger news; PHI paper slides as tender offer extended again

By James McCandless

San Antonio, Oct. 9 – The distressed debt market began a short week abuzz about energy names.

Leading oil names, Ensco plc’s notes gained after the company announced that it would be purchasing Rowan Cos. plc, whose notes also improved, for $2.38 billion.

Petrobras SA’s issues also gained as a result of the first round of Brazil’s presidential election.

Domestic oil and gas names were weaker across the board due to global supply worries, sending tranches in Sanchez Energy Corp., California Resources Corp. and Bristow Group Inc. lower.

PHI, Inc.’s paper slipped after again extending the deadline for a cash tender offer.

After bedding retailer Mattress Firm filed for bankruptcy on Friday, producer and one-time supplier Tempur Sealy International, Inc.’s notes have been in decline.

Elsewhere, American Tire Distributors’ issues gained on Friday’s news that the company reached an agreement with its senior creditors on its restructuring deal.

In retail, Sears Holdings Corp.’s paper saw a bump after the company announced the appointment of a new member to its board of directors who brings expertise in restructuring corporations.

Ensco, Rowan to merge

Ensco’s notes were rising on Tuesday, traders said.

The 5.2% notes due 2025 gained 1½ points to close at 88 bid. The 4½% notes due 2024 rose 1¼ points to close at 86¾ bid.

“This was the talk of the distressed area today,” a trader said.

On Monday the London-based energy drilling contractor announced that it would be acquiring competitor Rowan in a $2.38 billion all-stock deal.

Under the terms of the deal, Rowan shareholders would receive 2.215 Ensco shares for each share held. As a result, 60.5% of the combined company is expected to be held by Ensco shareholders.

The deal is expected to close in the first half of 2019.

Ensco’s notes have been operating in distressed territory as the company consistently reported earnings losses in the past year, most recently a 30 cents per share loss against analyst expectations of a 33 cents per share loss.

Traders also spotted Rowan’s issues gaining throughout the day.

The 4¾% notes due 2024 added ½ point to close at 90 bid. The 5.85% bonds due 2044 jumped up 3 points to close at 79½ bid.

S&P Global Ratings lowered Ensco’s issuer credit rating and put other ratings up for review.

“On the one hand, it increases their fleet size and strengthens their position,” the trader said. “But they’re pretty leveraged as is. If the uncertainty surrounding oil now extends into next year, they’re setting themselves up to underperform again.”

Energy names lead session

Elsewhere in the energy space, oil names generated the most buzz in Tuesday trading with Petrobras on top, market sources said.

Rio de Janeiro-based oil and gas producer Petrobras’ 5¾% paper due 2029 picked up ¼ point to close at 92¾ bid.

The notes climbed in reaction to news that right-wing candidate Jair Bolsonaro won the first round of voting in Brazil’s presidential election, a market source said.

Bolsonaro took 46% of the vote while his party won control of the lower house of Congress.

Meanwhile, in the domestic market, energy names were sent lower despite an improvement in crude oil futures.

“Part of it is the next hurricane,” a trader said. “That and Iran’s ability to export with the coming sanctions just made everything seem weaker.”

Houston-based oil and gas producer Sanchez Energy’s bellwether 6 1/8% due shaved off about ¼ point to close at around 58 bid.

Sector peer California Resources, a Los Angeles-based producer, saw its 6% notes due 2024 drop about 4¾ points to close at 88 bid. The 8% notes due 2022, while moving as low as 96 in intraday trading, settle back up at around 96½ bid.

Houston-based offshore aviation services provider Bristow’s 6¼% paper due 2022 lost 2¾ points to close at 76 bid.

On Friday, the 6¼% paper added 3½ points.

West Texas Intermediate crude futures saw a 67-cent boost to end Tuesday’s session at $74.96 per barrel. Last week, the benchmark hit a four-year high at $76.90.

North Sea Brent crude futures added $1.09 to end at $85.00 per barrel.

PHI lower, extends offer

Remaining the talk of the oil services space, PHI’s notes were declining, traders said.

The 5¼% notes due 2019 lost ¾ point to close at 94 bid.

The Lafayette, La.-based offshore transportation name again extended a cash tender offer for the $500 million outstanding of the 5¼% notes while hiring Houlihan Lokey as a financial adviser.

The deadline for the offer had been extended for a sixth time last week to Oct. 5 after only receiving tenders for $400 million, Prospect News reported.

The deadline is now set for 5 p.m. ET on Oct. 12.

“With a new party involved, it’ll be interesting to see if they find what they need and close the offering or keep kicking the can down the road,” a trader said.

Tempur Sealy down

In the aftermath of retailer Mattress Firm filing for bankruptcy on Friday, bedding manufacturer Tempur Sealy’s paper declined, market sources said.

The 5½% paper due 2026 fell ¼ point to close at 94¼ bid.

On Friday, the paper lost about ½ point.

“It’s sort of brought to light the weakness in the traditional mattress business,” a trader said. “We’ve seen a lot of online competition gaining ground in the last few years and now Amazon is putting out their own mattress.”

The Lexington, Ky.-based manufacturer was a one-time supplier to Mattress Firm, ending that relationship last year after failing to agree to new terms after Steinhoff International Holdings NV purchased Mattress Firm, a South African firm plagued by an accounting scandal.

American Tire rises

Meanwhile, American Tire’s notes bounced up from a recent low, traders said.

The 10¼% notes due 2022 picked up 2 points to close at 23 bid.

The Huntersville, N.C.-based company announced late Friday that it had reached a deal with its senior creditors, allowing the company to move forward with its restructuring plan which had already won the approval of 75% of its bondholders.

Traders called the agreement a positive step to coming out on the other side of bankruptcy with a better structure scaled to a reduced revenue stream.

Last Thursday, after losing distribution deals and spending much of the year under scrutiny, the company filed for bankruptcy. Its recapitalization agreement would reduce its debt by $1.1 billion and give 95% of bondholders a 95% stake in the new company.

Sears improves

The retail space saw positive movement for Sears’ notes, market sources said.

The 6 5/8% paper due Oct. 15, 2018 rose 1½ points to close at 88 bid. The 8% notes due 2019 added ½ point to close at 26 bid.

Paper started to rise after news broke Tuesday morning that the Hoffman Estates, Ill.-based department store chain had appointed restructuring expert David Carr to its board of directors, market sources said.

Carr is currently chief executive officer of Drivetrain, a restructuring advisory firm.

Sears CEO Eddie Lampert has recently put forward a restructuring proposal that would reduce the company’s debt by $1.1 billion and potentially pay the same amount to Lampert’s investment firm ESL Investments.

© 2015 Prospect News.
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