Transocean mostly down as special meeting called; Peabody dips as Lazard hired; Abengoa rises

By Stephanie N. Rotondo

Phoenix, Aug. 26 – A “strong rally in the equity markets was lending itself to strength in the distressed market,” a trader said Wednesday.

After two days of hefty losses in the equity arena, the Dow Jones industrial average popped over 600 points in midweek trading.

And while the distressed space was also generally firm, news was moving bonds around more than the overall market’s dealings.

Crude oil prices continued to weaken as new data showed another uptick in U.S. stockpiles, as well as a surprising dip in gasoline demand. That was putting pressure on oil and gas names.

However, Transocean Ltd. had news late Tuesday indicating that it would soon ask shareholders to cancel dividends for the third and fourth quarters. On the heels of that announcement, the offshore oil driller’s debt was coming in.

Elsewhere in the energy arena, Peabody Energy Corp.’s debt ended softer as well. The dip came on a report that the company has hired Lazard Ltd. to advise on a restructuring.

Away from energy, Abengoa SA’s bonds popped after it was reported that banks were giving the Spanish renewable energy producer the go-ahead on a capital increase.

Transocean tumbles

Transocean said late Tuesday that it was calling an “extraordinary meeting” with shareholders to discuss several issues – most notably, a cancellation of the company’s upcoming dividends.

In response, the company’s debt – and equity – was weakening.

One trader said the 6 7/8% notes due 2021 were “pretty active,” trading around 78.

While he said the level “doesn’t seem that much different,” he did see softness in the 6% notes due 2018.

Prior to the news, he said, paper had been trading around 95. After the announcement on Tuesday, the bonds began to dip, falling to 94.

Come Wednesday, the bonds traded down to 93½.

A second trader said the 6% notes were unchanged to down a shade at 93¾. But he also saw the 6½% notes due 2020 falling over 2 points to 80¼.

As for the equity (NYSE: RIG), it fell 60 cents, or 4.92%, to $11.60.

In addition to announcing the special meeting – scheduled for Oct. 29 – Transocean also said it was looking at booking up to $2.1 billion in asset impairments due to declining oil prices that have weighed on demand for its services.

“Eliminating the dividend doesn’t surprise us and is credit positive,” wrote Gimme Credit LLC analysts Philip C. Adams in an afternoon comment.

The news came after Moody’s Investors Service said on Tuesday that it had placed Transocean – and 10 other oil drillers – on downgrade review.

Peabody signs Lazard

Coal producer Peabody Energy meantime saw its debt weighed on by news that it had hired Lazard to look into its restructuring options.

“The headlines created some activity, but I don’t think [the news] was anything earth-shattering,” a trader said, adding that there were “no drastic moves” in the bonds.

He called the 10% notes due 2022 “a little bit lower” around 40. He also said the 6% notes due 2018 “weren’t that changed” at 31½ bid, 32 offered.

A second trader deemed the 10% notes off half a point at 41 and the 6% notes down over a point at 31¾.

Peabody’s stock (NYSE: BTU) declined 12 cents, or 7.27%, to $1.53.

Like its sector peers – several of whom are currently in bankruptcy – Peabody has struggled amid a cheap coal market and declining demand. With $6.3 billion in debt, the company is looking at ways it can improve its bottom line.

Abengoa boosted

Abengoa’s 8 7/8% notes due 2017 jumped 7½ points to 68 in Wednesday trading, according to a trader.

“There were very few scant trades, but it was nonetheless positive,” he said.

The gains came as it was reported that three banks – Credit Agricole SA, Banco Santander SA and HSBC Holdings plc – agreed to underwrite a €650 million capital increase.

On Aug. 7, Abengoa said it wanted to raise €650 million of new capital. Additionally, it wants to divest itself of about €500 million in assets.

It also recently reported that expected free cash flow would be about €800 million lower than previously forecast.

Those announcements did little to appease investors and bonds dropped over 10 points in two days.

© 2015 Prospect News.
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