Transocean scrapping more rigs, bonds weaken; Cliffs gains ahead of new issue; MagnaChip wanes

By Stephanie N. Rotondo

Phoenix, March 20 – A declining dollar helped oil prices improve on Friday, which in turn helped many distressed energy names rebound.

Transocean Ltd., however, was not so lucky, as investors reacted poorly to a rating downgrade on Thursday and word of more scrapped rigs.

Also in the commodity space, Cliffs Natural Resources Inc. paper was trending higher. The iron ore producer has been shopping a new deal, which is set to price next week.

Elsewhere, MagnaChip Semiconductor Corp. debt took a downward turn in Friday trading. Earlier in the week, the chipmaker said it was delaying its 10-K filing, as it needed more time to deal with certain earnings that needed to be restated.

Transocean softens

Transocean debt was slipping Friday, following Standard & Poor’s rating downgrade on Thursday.

Also on Thursday, the offshore oil driller said it was scrapping four rigs, which will cost the company $300 million to $325 million in noncash impairment charges in the first quarter.

Another four rigs have been stacked. The company said about a month ago that it planned to shutter seven other rigs.

A trader deemed the 6 3/8% notes due 2021 half a point weaker at 84 amid “heavy volume.” He also saw the 6.8% notes due 2038 dropping nearly a point to 73.

At another desk, a trader pegged the 6 3/8% notes at 83 bid, 83½ offered, which he said was “a little lower.”

S&P cut its long-term corporate credit rating and senior unsecured debt ratings to BB+ from BBB- on Thursday.

The change took into account the current oversupply in the oil market and the resulting oversupply of offshore drilling rigs. The agency also noted that it expected Transocean’s credit measures to weaken, despite plans to reduce its dividend.

Oil rally spurs energy

While Transocean bonds were slipping, many other energy names were on the rise Friday in reaction to a gain in oil prices.

West Texas Intermediate crude for April delivery rose $1.76, or 4%, to $45.72 a barrel. Brent crude gained 53 cents to $54.96.

A trader said Linn Energy LLC’s 8 5/8% notes due 2020 closed up over a point at 83. At another desk, the 7¾% notes due 2021 were seen at 79 bid, up 2¼ points.

Comstock Resources Inc.’s 7¾% notes due 2019 were also better, gaining 2¼ points to end at 39½, according to a trader.

In Energy XXI Ltd. debt, the 7½% notes due 2021 were called half a point higher at 38½.

Even Quicksilver Resources Inc., which filed for bankruptcy on Tuesday, were gaining traction.

A trader said the 9 1/8% notes due 2019 edged up half a point to 17.

However, he noted that the 11% notes due 2021 fell slightly to 17 3/8.

Some issues in the oil and gas arena did not see any benefit from the oil price gains, however.

A trader saw Sabine Oil & Gas Corp.’s 7½% notes due 20210 dipping half a point to 15¼.

That trader also saw Swift Energy Co.’s 7 1/8% notes due 2017 taking a massive hit, trading down to 54 from levels around 62½ at the end of the previous week.

Cliffs climbs up

A trader said Cliffs Natural Resources’ 5.95% notes due 2018 closed over 2 points firmer on the day at 77¼.

Another trader said the issue “got as good as” a 77 to 78 context, adding that the notes “were closer to 74” previously.

On Thursday, market sources reported that the Cleveland-based company was planning a roadshow for $500 million of first-lien senior secured notes due 2020, with pricing expected sometime in the coming week.

Proceeds from that offering will be used to pay down the company’s revolver and for general corporate purposes.

In late February, Cliffs elected to take a second shot at a tender offer, launching an exchange for four series of notes for new 7¾% notes due 2020.

The exchange was initially capped at $750 million but was soon lifted to $1.25 billion.

On March 12, the company said that $635 million of the four series of notes had been accepted as of the early tender deadline.

The exchange offer expires March 25.

MagnaChip fizzles

MagnaChip’s 6 5/8% notes due 2021 were seen sliding 4 points from levels on Monday to close at 71 on Friday.

“There was a whole bunch of activity today,” a trader noted.

On Tuesday, the Luxembourg-based company said it was delaying its 10-K filing, as it needed more time to deal with an earnings restatement from its 2013 annual report. MagnaChip said it hoped to release the current and restated earnings in the second quarter.

© 2015 Prospect News.
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