Oil, gas bonds dip despite crude gains; coal sector weighed by Patriot filing; JCPenney softer

By Stephanie N. Rotondo

Phoenix, May 12 – The distressed debt market traded down with the broader markets on Tuesday.

However, while the rest of the markets ended off of the day’s lows, the distressed arena did not experience much of a rally.

Even the oil and gas space remained weak, despite a 3%-plus gain in crude oil prices.

The coal space also continued to be soft. The sector was further pressured in Tuesday trading as Patriot Coal Corp. announced that it had filed for Chapter 11 protections – again.

In the world of retail, J.C. Penney Co. Inc. bonds were finishing with a negative tone. The company is slated to bring earnings on Wednesday.

Oil sector depressed

The oil and gas sector ended Tuesday’s session with a mostly weaker tone, despite an over 3% gain in crude oil prices.

Energy XXI Ltd.’s 7½% notes due 2021 closed at 39¾, down 1½ points on the day, according to a trader.

Comstock Resources Inc.’s 7¾% notes due 2019 meantime dropped 2 points to 51.

In Midstates Petroleum Co. Inc. paper, a trader saw the 9¼% notes due 2021 falling “almost a point” to 54½, while the 10¾% notes due 2020 declined 1½ points to 56½.

SandRidge Energy Inc. bonds were also getting hit, markets sources reported.

At one shop, the 7½% notes due 2023 were seen off almost a deuce at 68¾. The 8 1/8% notes due 2022 dipped 1½ points to 69, as the 7½% notes due 2021 fell a similar amount to 71.

At another desk, the 2021 issue was pegged at 71 bid, down almost 2 points.

Though the oil space was mostly weak, there were some names that held their ground.

EXCO Resources Inc.’s 8½% notes due 2022, for instance, closed unchanged at 60. Seventy Seven Energy Inc.’s 6½% notes due 2022 were likewise stable at 64½, a trader said.

On the upside, Sabine Oil & Gas Corp.’s 9¾% notes due 2017 edged up a quarter-point to 18¼.

West Texas Intermediate crude ended Tuesday up $1.93, or 3.26%, to $61.18 per barrel. Brent crude improved by $2.16, or 3.33%, to $67.07.

Coal skids on Patriot filing

The struggling coal arena continued to fade in Tuesday trading as Patriot Coal announced its second entrance into bankruptcy since 2013.

A trader said Alpha Natural Resources Inc.’s 6¼% notes due 2021 slipped slightly to 16 5/8. The same trader also saw Arch Coal Inc.’s 8% notes due 2018 retreating a point to 34½.

Peabody Energy Corp.’s 6¼% notes due 2021 were seen sliding half a point to 58½, while the 6½% notes due 2020 declined a point to 60.

Patriot Coal – whose $250 million term loan B was trading at 67 bid on Monday – cited “challenging market conditions” as its reason for the so-called Chapter 22 filing. The company has lined up a $100 million debtor-in-possession facility to fund operations while trudging through the bankruptcy process, though the company said it is in talks to sell all of its assets.

JCPenney earnings up next

JCPenney’s latest quarterly results are on deck for a Wednesday release. Ahead of the earnings, the retailer’s debt was in decline.

One trader said the 5.65% notes due 2020 were steady at 86 ¾. However, another source also pegged the issue at that level, deeming the notes off over a point.

Among other retailers, a trader saw Gymboree Corp.’s 9 1/8% notes due 2018 holding in at 47.

But Claire’s Stores Inc.’s 8 7/8% notes due 2019 were seen falling nearly a point to 52.

LightSquared talk out

LightSquared Inc. released talk of Libor plus 775 bps with a 1% Libor floor, an original issue discount of 97 and call protection of non-callable for one year, then at 102 in year two and 101 in year three on its $1.75 billion five-year first-lien term loan that is slated to launch with a bank meeting at 12:30 p.m. ET in New York on Wednesday, according to a market source.

The loan has a ticking fee of 1% for the first 120 days and an additional 1% after 120 days, the source said.

Credit Suisse Securities (USA) LLC, Jefferies Finance LLC and Morgan Stanley Senior Funding Inc. are leading the deal that will be used to fund the company’s exit from Chapter 11 and refinance debtor-in-possession facilities.

Commitments are due on May 27.

LightSquared is a Reston, Va.-based wireless communications company.

Sara Rosenberg contributed to this article

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