Earnings, recent high yield issues in focus; Frontier, Community Health remain in play; iHeart softens

By Stephanie N. Rotondo

Seattle, Aug. 3 – A distressed debt trader said investors were focused on the current earnings season, speculating that once the market had digested the various results, volume could pick up.

As it was, “there was a fair amount of focus on all the new [high yield] issue stuff,” he said.

But earnings were in fact playing a role in Thursday trading, with Frontier Communications Inc. and Community Health Systems Inc. being eyed after their results announcements earlier in the week.

For its part, Frontier’s debt lost all of the gains incurred since its announcement on Tuesday. Community Health meantime remained weak.

The hospital operator also reported on Tuesday.

Meanwhile, iHeartCommunications Inc.’s bonds were “not overly active, but definitely a little softer,” according to a trader.

He pegged the 14% notes due 2021 in a 22½ to 23 context.

The weakness in the name came as the San Antonio-based multimedia company extended a previously announced exchange offer – for the ninth time.

The exchange was first announced on March 15, with a deadline of April 14. The latest extension pushes the deadline out to 5 p.m. ET on Aug. 18.

As of Wednesday, only about 0.6% of the notes included in the offer had been validly tendered.

Frontier backs off

Frontier Communications’ 11% notes due 2025 were “giving back some of the gains” incurred after the company’s Tuesday earnings release, a trader reported.

“They are down to where they were before the numbers,” he said, pegging the paper in a 91 to 91½ range.

For the quarter, Frontier reported an adjusted loss per share of $1.10 on revenue of $2.3 billion.

Analysts had expected a loss per share of 91 cents on revenue of $2.31 billion.

The company also lowered guidance for the year.

In an afternoon comment published Thursday, Gimme Credit LLC analyst Dave Novosel wrote that the company is dealing with a free cash flow problem, given that while positive for the second quarter, it was still negative for the year.

“Nonetheless, management seems committed to the hefty dividend,” he wrote. “Liquidity is sufficient at the moment.”

Lindsay Pacia, an analyst at CreditSights, called the earnings “uninspiring” in a report out Wednesday.

“Frontier’s uninspiring earnings did little to instill confidence in the company’s long-term narrative,” she wrote in a research note. “Operating results continue to be weak on the back of sub losses, but Frontier has cleared a runway for the time being.”

More losses for Community Health

Community Health “continues to be active, continues to drift,” a trader said Thursday.

The trader saw the 7 1/8% notes due 2020 going out at 93 bid, 93½ offered.

That was down from levels around 95 on Wednesday.

Like Frontier, Community Health reported earnings on Tuesday after the market closed.

For the second quarter, net loss came to $137 million, or $1.22 per share. That compared to a loss of $1.43 billion, or $12.91 per share, the year before.

The company had incurred a $1.38 billion operational loss the previous year.

Operating revenue declined 9.7% to $4.14 billion.

On an adjusted basis, the company reported a loss of 25 cents per share.

Analysts had forecast a loss of 1-cent per share, on revenue of $4.11 billion.

Fannie loses ground

Fannie Mae preferreds were in play on Thursday following the release of the agency’s latest quarterly results.

And while the bottom line beat year-ago figures, the preferreds were losing ground.

The 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were down a dime, or 1.45%, at $6.80.

About 1.59 million of the preferreds changed hands.

The 8.25% series T noncumulative preferreds (OTCBB: FNMAT) dipped 2 cents to $6.67, though on only about 321,100 shares traded.

As for sector peer Freddie Mac, its 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) declined a nickel to $6.55.

Just over 210,000 of those preferreds were trading.

For the second quarter, Fannie posted net income of $3.2 billion. That compared to income of $2.9 billion for the same quarter of 2016 and $2.8 billion for the first quarter of 2017.

However, net revenues declined to $5.4 billion from $5.5 billion the previous year. In the previous quarter, revenue was $5.6 billion.

If the Federal Housing Finance Agency should require it, Fannie intends to make a $3.1 billion dividend payment to the U.S. Treasury. Prior to that payment, Fannie has paid back $162.7 billion to the government following its September 2008 bailout.

Freddie Mac announced its results earlier in the week. A change in the language regarding the dividend had the market wondering if the FHFA was planning to let the GSEs’ start to rebuild their capital cushion.

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