Halcon Bonds Plummet as Explorer Engineers Another Debt Swap

  • Deal advances claims of some, not all, unsecured creditors
  • Unsecured bonds lose more than a quarter of their market value

Bonds of Halcon Resources Corp. plummeted after the explorer announced a debt exchange with some of its creditors that weakens the standing of other unsecured lenders.

The Houston-based explorer plans to issue about $1 billion of third-lien debt that pays 13 percent in exchange for $1.6 billion of outstanding bonds, according to a statement Thursday. The company’s bonds lost more than a quarter of their value on Friday, as the deal may lower the claims of investors left holding more than $1 billion of unsecured bonds that will remain.

Halcon, run by Floyd Wilson, one of the architects of the U.S. shale boom, has been buffeted by crashing oil prices and banks cutting its credit line. The debt exchange would result in a further reduction of its revolving credit facility to $850 million from more than $1 billion at the start of the year.

The swap with some lenders into the higher coupon notes will cut Halcon’s long-term debt by $548 million, according to the statement.

Scott Zuehlke, a Halcon spokesman, didn’t immediately return calls and respond to an e-mail seeking comment.

The company’s 9.75 percent notes due in July 2020 dropped 12.7 cents to 34.8 cents on the dollar at 12:21 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Standard & Poor’s assigned a CCC rating to the proposed secured notes, while reducing the grade on the unsecured debt to the equivalent of default on account of investors receiving less than what was promised on the original securities.

In April, two funds headed by Franklin Resources Inc. agreed to exchange $116.5 million in principal of Halcon’s 9.75 percent bonds for 66.5 million shares of the company’s stock.

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