| NEW YORK, March 6 (IFR) - Texas-based E&P Comstock Resources secured liquidity through a US$700m senior bond this week as a preemptive measure ahead of an anticipated cut in its bank debt lines in April. Comstock's new trade had a structure that appealed to investors because it faced the prospect of a US$100m cut in its US$675m revolving bank debt to around US$575m which made the bond issuance critical, sources said. It issued a senior secured bond - a rare one from the E&P sector that mostly issued unsecured debt in the past - and paid a 10% yield or almost 100bp more than its low 9% area whispers. "Comstock is like many of these energy companies that if oil prices remain depressed for an extended period of time and depending on where oil recovers, could lead to difficulty with its capital structure," said Steven Oh, global head of credit and fixed income at PineBridge Investments. "Additional liquidity is prudent and would allow the company to better avoid a default or restructuring process." The five year non-call one notes will be guaranteed by each of Comstocks' subsidiaries, with the notes and guarantees then secured by a first priority lien on substantially all of the company's and subsidiary assets. Investors said given where outstanding unsecured bonds were trading, not issuing secured bonds would have been an expensive proposition for Comstock. Comstock's outstanding unsecured US$400m 7.75% notes due 2019 and US$288m 9.5% bonds due 2020 for example, were trading at 58 on a cash price of 23.5% yield while its 2019 bonds were trading around a 56 cash price to yield 23.92%. In comparison, the new secured bond stayed around new issue price in the secondary market, a trader said. "We believe the company felt too much uncertainty with regard to its liquidity position and just wanted to resolve it," said S&P director of corporate ratings Carin Dehne-Kiley. "The biannual borrowing base redetermination typically happens in April and we believe the company expected to see a reduction." Lenders are expected to rein in the size of E&P company revolvers in the spring when the so-called biannual borrowing base redeterminations of the size of their bread and butter asset based revolvers gets under way. LIQUIDITY BOOST Proceeds from the secured bond offering will pay an outstanding US$375m revolver, and after that only a new US$50m secured revolving credit facility would remain outstanding. Moody's which last month downgraded Comstock family rating to B3 from B2 and its senior notes offering to Caa1 from B3, noted the new debt would provide the company with critical cash liquidity to fund operations over 2015-2016. Though independent research firm Covenant Review raised concerns that the liens supporting the notes will be effectively junior to the liens on the collateral securing the US$50m revolver, investors were largely positive about the new trade. The closing of the secured notes, the first from Comstock, was contingent upon the closing of the new US$50m revolver. The bond issue was comfortably subscribed thanks also to an emerging bid for E&P names. In the last 10 days up until March 5, outstanding bonds of energy sector high-yield names had tightened 9bp, according to the BAML Master Index. On Thursday, three E&P names also found a decent bid for their bonds which showed investor appetite was slowly returning for the sector's bonds. (Reporting By Mariana Santibanez; editing by Shankar Ramakrishnan and Jack Doran)
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