Halcon Resources Corp. bonds rallied by the most in two months after the energy company said the largest publicly disclosed holder of the notes agreed to a debt-for-equity swap.
Two funds headed by Franklin Resources Inc. agreed on Tuesday to exchange $116.5 million in principal of the 9.75 percent bonds maturing in 2020 for 66.5 million shares of Halcon stock, according to a company filing. The notes rose as much as 3.75 cents on the dollar to yield 15.4 percent Thursday in the second-highest daily trade volume ever, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Shares of the exploration and production company have tumbled 76 percent since July amid a commodity slump that’s cut the price of oil to about half of what it was last summer. The exchange, which will reduce the company’s debt, is expected to close this month, and comes after Halcon in March announced a $150 million equity offering.
“With any sort of distressed-debt scenario, you start to see lots of discussions around bondholders exchanging bonds” for other debt or equity, Spencer Cutter, an analyst with Bloomberg Intelligence, said by telephone Thursday. “Maybe Franklin’s got a view on Halcon and their ability to weather this storm. This is an easier way for them to trade out of the debt without impacting the market price for it and buy the equity also.”
The swap will give Franklin the second-largest publicly disclosed stake in Halcon shares, according to data compiled by Bloomberg. The investor is among the largest publicly disclosed holder of bonds for offshore drilling companies including Hercules Offshore to Vantage Drilling, Bloomberg data show.
The 2020 bonds, which traded as high as 11 cents above par in June, have recovered since falling to a record low 66 cents on the dollar last month, trading as high as 80 cents Thursday.