Quicksilver downgraded after missed coupon; Caesars CDS auction held, bonds drop; Freddie dips

By Stephanie N. Rotondo

Phoenix, Feb. 19 – The distressed debt market was mixed on the day, following an initial jobs claims report and Germany’s rejection of Greece’s loan extension request.

Initial jobless claims for the week ended Feb. 14 fell 21,000 to 283,000, according to the latest Labor Department report. However, continuing claims rose 58,000 to 2.43 million for the week ended Feb. 7.

As for the ongoing Greek drama, Germany rejected Greece’s request to extend its Eurozone loan for six months, during which time the ailing country pledged “fiscal balance.”

However, Germany said the plan was “not a substantial proposal for a solution.”

Traders gave mixed reports regarding Quicksilver Resources Inc. The company received a downgrade on Thursday, after missing a coupon payment on Tuesday.

However, Caesars Entertainment Corp. wasn’t as lucky, ending weaker following an auction to settle the company’s credit-default swaps.

The company also sought to disband a second-lien creditors committee.

Quicksilver downgraded

Quicksilver was downgraded to D from CCC- by Standard & Poor’s on Thursday.

The rating change came on the back of a missed $13.6 million coupon payment on the 9 1/8% notes due 2019 on Tuesday.

One trader saw the debt structure softening on the day, the 9 1/8% notes slipping “almost a point” to 9 3/8. The 11% notes due 2021 dipped half a point to 9 3/8, while the 7 1/8% notes due 2016 fell to 1 – “almost worthless,” the trader said – from levels around 4 about a month ago.

But another trader said the bonds were “up a smidge from the lows,” noting that the paper “cracked” in Wednesday trading.

He placed the 9 1/8% notes in a “+/-9” context. He also deemed the floating-rate notes due 2019 “a little bit better” at 67.

Quicksilver has 30 days to make the payment – though the company has said it won’t – or a default will occur. A default would make the principal amount of the notes accelerate.

In order to address its debt issues, the Fort Worth, Texas-based oil and gas company has hired Houlihan Lokey Capital, Inc., Deloitte Transactions and Business Analytics LLP and other advisors. If a solution does not show up, the company could file for bankruptcy protections.

Caesars softens

A CDS auction for Caesars Entertainment was held Thursday, setting the price at 15.9.

Additionally, the company asked the court overseeing its bankruptcy case to disband its second-lien noteholders committee, asserting that the creditor class has enough representation on its creditors’ committee.

The Las Vegas-based casino operator said the additional committee would only rack up expenses.

With those news items floating around, investors pushed the company’s second-lien debt lower.

A trader said the 10% notes due 2018 fell almost a point to 17¾, while the 12¾% notes due 2018 slid nearly half a point to 18 3/8.

The 10¾% notes due 2016 meantime fell half a point to 23.

Even the first-lien debt was slipping, he said.

The 9% notes due 2020 ended half a point weaker at 74.

Freddie earnings disappoint

Freddie Mac reported net income of $227 million for the fourth quarter on Thursday.

That compared to income of $8.6 billion the year before.

“The earnings didn’t hit estimates,” a trader noted.

For all of 2014, net income was $7.7 billion, down from $48.7 billion.

The mortgage giant attributed the substantial difference to losses from investments.

And despite the fact that the government-sponsored entity was planning to make a $900 million dividend payment to the Treasury Department next month – bringing the total amount paid back up to $91.8 billion – the agency’s preferred shares were weakening.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were down a dime, or 2.2%, at $4.45. Sister agency Fannie Mae saw its 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) slipping 7 cents to $4.63.

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