Oil driller Venoco Inc.’s unsecured bonds tumbled after the company pushed them down in its capital structure.
Venoco’s $500 million of 8.875 percent securities maturing in February 2019 dropped 9 cents to 43.5 cents on the dollar at 9:05 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The Denver-based company sold $175 million of first-lien bonds with a 12 percent coupon and borrowed $75 million of term loans to repay and terminate its revolving credit line, according to an April 2 statement.
Standard & Poor’s cut its credit rating on the company to “selective default” as Venoco also carried out a distressed exchange on $194 million of the 2019 notes into second-lien securities at 77.5 percent of face value. About 39 percent of holders participated in the exchange, according to an S&P statement. Venoco has an option to pay interest in the form of more notes for the first two years at a rate of 12 percent or the regular cash coupon of 8.875 percent.
“We view the exchange as tantamount to default because investors received less than what was promised on the original securities,” S&P analyst Ben Tsocanos wrote in the report. “The lower recovery rating on Venoco’s senior unsecured notes reflects the increase in secured debt ahead of the notes in the capital structure.”
Zach Shulman, a spokesman at Venoco, didn’t immediately return a call seeking comment on the exchange.