Crude oil gains spur sector bonds higher; Goodrich preferreds weaken; Fannie, Freddie improve

By Stephanie N. Rotondo

Phoenix, Aug. 31 – Trading volumes waned Monday, as market players focused on month-end activities.

“It wasn’t very active in the street today,” one trader said. With this being the final vacation week of the summer, “a lot of people are off this week,” the trader noted.

Another trader noted that along with the vacations, those coming back from “a very volatile week” last week were sitting back going into month-end.

“There was not a lot of reasons for a lot of volume,” he said.

Most of the day’s activity was centered on energy, according to one trader, as domestic crude oil prices rose sharply in Monday trading.

“The market for crude oil has caught fire in the last week,” he said.

Crude oil prices popped 7.56% to trade at $48.64 a barrel for October delivery. Those gains were attributed to reports that OPEC members were willing to engage with producers in an effort to stem production amid a global oversupply and the resulting lower prices.

Among oil and gas names, a trader said Transocean Ltd.’s 6 7/8% notes due 2021 jumped a deuce to 81 5/8, while the 4.3% notes due 2021 increased 1½ points to 69¼.

California Resources Corp.’s 5½% notes due 2021 were meantime up over half a point at 77 5/8, the trader said.

At another desk, a trader said Halcon Resources Corp.’s bonds were “inching up a little bit,” seeing issues such as the 9¾% notes due 2020 trading in the mid-30s.

Among distressed preferred stocks, Vanguard Natural Resources LLC’s 7.875% series A cumulative redeemable preferred units (Nasdaq: VNRAP) gained 7 cents to close at $22.09, while the 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) jumped 36 cents, or 2.06%, to $17.87.

Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) meantime put on 22 cents, or 1.48%, finishing at $14.78.

However, Goodrich Petroleum Corp. preferreds were on the decline after the company cut its dividend payments.

Goodrich cuts dividends

Goodrich Petroleum’s 10% series C cumulative redeemable preferreds (NYSE: GDPPC) and 9.75% series D cumulative redeemable preferreds (NYSE: GDPPD) were taking a beating on news the company was canceling its dividends.

The Cs closed down 33 cents, or 12.41%, at $2.33. The preferreds were off $1.28, or 48.21%, at $1.38 at mid-morning.

The Ds fell 23 cents, or 9.54%, to $2.18, after being off $1.01, or 41.91%, at $1.40 at mid-morning.

The cancellation of the dividend – which will also impact the 5.375% series B cumulative convertible preferreds – was announced late Friday. If dividends are not paid on the Cs and S for six periods – consecutive or otherwise – holders of the shares can elect to additional directors to the company’s board. As for the Bs, the nixed payment means a 1% increase in the dividend rate until all accumulated payments are made in full.

Fannie, Freddie rise

Fannie Mae and Freddie Mac paper was moving up Monday as investors reacted to news out Friday regarding a potential settlement between shareholders and the federal government.

“They are all up 20 to 30 cents,” a trader said of the GSE preferreds.

The preferreds got a boost after Dick Bove, an influential analyst at Rafferty Capital, said on Friday that he believed the government was preparing to settle various shareholder lawsuits that had been brought in relation to the government’s sweep of the mortgage giants’ profits.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) gained 16 cents, or 3.35%, to end at $4.93. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) improved 18 cents, or 3.81%, to $4.91.

The belief stems from documents released in early August that showed the GSEs’ “CEOs were encouraged to overstate their instability,” a trader said. That in turn allowed the government to begin taking a majority of the GSEs’ quarterly earnings – which has already returned well over what the agencies’ took in the 2008 bailout.

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