January 14, 2016 / 8:29 PM / 2 years ago

Pacific bonds swing on takeover denials, buyback

NEW YORK, Jan 14 (IFR) - Bonds issued by Pacific Exploration & Production suffered a volatile session on Thursday as prices swung on takeover talk that was denied by the troubled LatAm oil company.

Harbour’s announcement that it would offer to buy some US$4bn of notes took bonds off their lows early in the session after prices reached around 10 cents on the dollar on Wednesday.

By early afternoon Thursday, however, the bond prices were giving back some gains and trading in the 13-16 range after Pacific announced in a Colombian regulatory filing that it had no knowledge of a takeover offer.

Either way, analysts expressed ambivalence about a deal that some thought came below recovery values.

Harbour Energy, which last year made a failed bid for Pacific, effectively offered to buy back the vast majority of its US$5bn debt load - though at a steep discount.

“We are offering to inject substantial capital by acquiring the senior notes of the company and sponsor an overall reorganization,” Harbour Energy said in a statement.

The company, formerly known as Pacific Rubiales, has been struggling since the dramatic collapse in crude prices.

“It is a common perception that the company won’t be able to fulfill its obligation under the current market conditions,” said Klaus Spielkamp, a head of fixed-income sales at Bulltick.

“If oil was trading above US$50 a barrel, they would have to sell assets and be a smaller company, but they would be okay. But at US$30 I don’t think there is a way they can survive.”

The company’s stock and bond prices have fallen 85% as crude slipped from US$66 a barrel on May 21 to Thursday’s level of around US$31.

A battle to gain control of the company last year only served to exacerbate secondary volatility.

Mexico’s Alfa and Harbour Energy shelved a C$6.50 per share bid to take it over last year when Venezuela investment firm O’Hara Administration blocked the move in a heated proxy battle.

Commodity trader Trafigura subsequently upped its stake to 10% after purchasing 2.2m shares at an average price of C$4.42 each. Shares were trading at C$0.66 on Tuesday.

Harbour Energy’s offer to buy back senior notes maturing between 2019 and 2025 had put a floor under bond prices that reached lows this week of around 10 cents on the dollar.

Prices across the company’s curve Thursday were as high as 15-16 cents on the dollar, just shy of the 17.5 cents that Harbour said it would pay for approximately US$4.1bn of bonds.

To receive that price, holders must submit tenders by the earlier bird date of January 27. Thereafter but before the February 10 expiration, the price will fall to 12.50.

But several analysts put recovery values at 20 cents and up.

“Even at current oil prices, many bondholders feel recovery is closer to 30 cents,” said Omar Zeolla at Oppenheimer.

The tender is conditioned upon reaching an agreement with creditors holding at least 80% of total outstanding principal and investors with 66.67% of outstanding on each series.

They must also agree to the restructuring plan, and Pacific’s denial of an offer to stakeholders has cast further doubt on Harbour’s ability to cut a deal with creditors.

“We note that the offer was directly only to the company’s bondholders,” Pacific said in the filing.

Still, unless another party comes along with a better price, bondholders may be better advised to take the offer while they can.

“The best thing might be to tender,” said Zeolla. “If the company runs out of liquidity and becomes insolvent, the recovery value may be less.” (Reporting by Paul Kilby; Editing by Marc Carnegie)

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