Oil and gas bonds rise despite over 4% decline in crude prices; Caesars ends softer on ruling

By Stephanie N. Rotondo

Phoenix, Jan. 28 – There was a positive feel to the distressed debt market on Wednesday – even in oil and gas names, though U.S. crude oil declined over 4% on the day.

However, in terms of liquidity, a trader said the day was “a big bust” as most of the Northeast continued to deal with heavy snowfall.

The price of West Texas Intermediate crude – which had been inching higher in recent sessions – fell as the Energy Information Administration said 8.9 million barrels were added to the U.S. during the last week.

Additionally, banks have been slashing their price forecasts left and right, adding to the pressure.

WTI crude dropped $1.98, or 4.28%, to $44.25 – almost a six-year low. Brent crude declined $1.17, or 2.36%, to $48.43.

Still, most oil and gas bonds were seen ending higher on the day.

A trader said California Resources Corp.’s 6% notes due 2024 inched up half a point to 82¾. Midstates Petroleum Co. Inc.’s 9¼% notes due 2021 gained over a point, closing at 51¼.

The latter company was downgraded by Moody’s Investors Service on Monday.

Also firmer were Samson Investments Co.’s 9¾% notes due 2020, which improved half a point to 31¼.

Energy XXI Gulf Coast Inc. was also better, with a trader placing the 7½% notes due 2021 at 44 – up half a point – and the 7¾% notes due 2019 at 45¾ – a gain of over 2 points.

EXCO Resources Inc.’s debt was among the few in the sector that were weaker.

One trader noted that the bonds were “on a lot of lists.” However, he added that volume in the name was thin.

The 8½% notes due 2022 fell almost a point to 62½, while the 7½% notes due 2018 dropped 3½ points to 65.

Caesars’ case Chicago-bound

Caesars Entertainment Corp. second-lien bonds fell in midweek trading as a bankruptcy judge said the company’s case – in regards to its Caesars Entertainment Operating Co. unit – could be heard in Chicago.

Creditors had tried to push the company into an involuntary filing in Delaware. The parent company followed with a voluntary filing in Chicago.

The decision to hear the case in Illinois was seen as a win for the company, as the state has stronger laws protecting the company’s owners from lawsuits.

Additionally, U.S. Bankruptcy Judge Kevin Gross said in his Wilmington, Del.-based courtroom that given the debtors had made the filing in Chicago, allowing the creditors to get their way would be a “bad precedent.”

A trader said the 10% notes due 2018 declined over 3 points to a 17 handle, while the 12¾% notes due 2018 fell nearly 3 points to 17¼.

The second-lien creditors are looking to fight a prepackaged bankruptcy plan that would recreate the opco as a real estate investment trust. That group of debtholders say the plan treats them unfairly, especially as they believe the company engaged in fraudulent activities in order to strip their creditor class of assets.

Fannie, Freddie rise

Fannie Mae and Freddie Mac preferreds were busy and better Wednesday, as a U.S. Court of Federal Claims judge said investors could proceed with a lawsuit against the government.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 32 cents, or 8.65%, to $4.02. The 8.25% series T noncumulative preferreds (OTCBB: FNMAT) increased by 45 cents, or 8.26%, to $5.90.

In Freddie paper, the fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) put on 26 cents, or 7.01%, closing at $3.97.

The government had requested a stay in proceedings in regards to a lawsuit brought by investors – including Fairholme Funds – that alleges the government’s takeover of most of the agencies’ profits was unconstitutional. The investor group is now allowed to continue to collect information, which it hopes to use to prove that the Court of Federal Claims is the appropriate court to hear the case.

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