Oil and gas bonds better despite oil price dip; coal sector remains soft; Fannie, Freddie gain

By Stephanie N. Rotondo

Phoenix, May 1 – The distressed debt marketplace was subdued Friday as investors turned their eye toward the high-yield new issue market.

However, there continued to be a focus on commodity names.

In particular, the oil and gas sector remained on an upward trajectory, even as oil prices faded slightly.

SandRidge Energy Inc.’s 7½% notes due 2021, for instance, were seen rising over 2 points to 71¼ by one trader.

That trader remarked that the issue was “the most active in the distressed world.”

Another market source pegged the issue at 71¼ bid, up 2½ points.

Even Halcon Resources Corp.’s bonds were better – or at the very least, unchanged – despite getting downgraded by Standard & Poor’s.

S&P’s rating action follows a similar move from Moody’s Investors Service on April 21 – the same day the company priced $700 million of 8 5/8% second-lien notes due 2020.

A trader saw Halcon’s 8 7/8% notes due 2021 inching up half a point to 79¼, while the 9¾% notes due 2020 held in at 83.

In the coal arena, bonds continued to be weak.

A trader said Arch Coal Inc.’s 7¼% notes due 2021 slipped slightly to 21 7/8. In Peabody Energy Corp., the 6% notes due 2018 were seen dipping a touch to 78 1/8.

At another desk, Alpha Natural Resources Inc.’s 6¼% notes due 2019 were deemed a point lower at 19 bid.

For its part, West Texas Intermediate crude fell 29 cents to $59.34 a barrel, as Brent crude drifted down 20 cents to $66.58.

Oil prices started to retreat Friday as the dollar gained strength and Iraq reported record-high exports for April.

Fannie, Freddie gain

Fannie Mae and Freddie Mac preferreds continued to see some action Friday following the release of disappointing stress test results on Thursday.

Early Thursday, the shares had begun to move up after a supposed memo from the Treasury Department was leaked. The memo indicated that the government acted in bad faith when it placed the GSEs under its care in 2008.

Later in the session, the stress test results came out, showing that the agencies could require up to about $160 billion in the event of a severe economic downturn. The preferreds started to come in on that news, though they still ended firm.

In early Friday trading, the preferreds were mixed. By the bell, the paper was trending higher.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 6 cents, 0r 1.2%, to $5.06. The 6.75% series Q noncumulative preferreds (OTCBB: FNMAI) were up 46 cents, or 10.5%, at $4.84.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were meantime 3 cents higher at $5.03.

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