Market wanes; Consol, Chesapeake retreat as oil slides; Bombardier walloped on demand concerns

By Stephanie N. Rotondo

Phoenix, July 22 – Distressed commodity names “got hit again,” a trader reported Wednesday.

For its part, gold was down nearly 1.5% early in the session, but closed 1% softer. Crude oil prices also took a dive, as West Texas Intermediate crude declined $1.76, or 3.46%, to $49.10.

The drop in oil prices came as the U.S. Energy Information Administration released its weekly inventory report, showing an unexpected 2.5 million-barrel gain for the week.

Analysts had predicted a 2.3 million-barrel decline.

The report only exacerbated oversupply concerns, especially after OPEC said earlier in the week that it would continue to maintain its production levels.

But that news put pressure on already weakened oil names such as Consol Energy Inc. and Chesapeake Energy Corp.

Elsewhere in the commodity space, FMG Resources’ bonds were also softening.

One trader saw the 9¾% notes due 2022 drop 1½ points to 90½.

Another trader placed the issue at 91.

But commodity-linked names weren’t the only issues taking hits.

Bombardier Inc.’s debt declined amid concerns about demand for business jets. Those concerns were spurred by comments made by executives from B/E Aerospace Inc. regarding softening demand for aviation parts, specifically for large-cabin executive aircraft.

Bombardier also held an investor call on Wednesday.

Consol reverses again

Consol Energy’s bonds were in retreat again on Wednesday, after rebounding on Tuesday from Monday’s lows.

A trader called the 5 7/8% notes due 2022 4 points weaker at 75. Another trader said that issue was “down a couple points to 77.”

Another market source called the 8% notes due 2023 up 3 points at 86½ bid.

The bonds had dropped on Monday after the company warned that lower energy prices will likely result in a loss for the second quarter.

In addition to warning of the quarterly loss, Consol also said it was planning to write-down certain oil and gas assets, due to a continued declined in Nymex forward prices.

Come Tuesday, it was reported that Southeastern Asset Management had upped its equity stake to 21.1% from 19.6% and that the firm wanted to meet with management to discuss monetizing the gas unit.

“We believe these assets alone are worth demonstrably more than the company's total equity capitalization today,” said Mason Hawkins, Southeastern’s chairman and chief executive officer, in a filing with the Securities and Exchange Commission.

Chesapeake in freefall

Chesapeake Energy debt meantime continued its slide, just one day after the company announced it was cutting its stock dividend.

“They continued mostly lower,” a trader said, seeing the 5¾% notes due 2023 falling 4 points to 82.

The trader also saw the 4 7/8% notes due 2022 down 2½ points at 78 7/8, while the 6 1/8% notes due 2022 dropped over 3 points to 82.

At another desk, a market source pegged the 6 5/8% notes due 2020 at 91¼ bid, down over a point on the day.

Yet another trader said the bonds were “down again another 2 to 3 points.”

The Oklahoma City-based oil and gas producer said cutting the dividend – a move many oil companies have taken as oil prices have dropped – would result in savings of up to $240 million a year. Those savings will then be used to develop “high quality” assets, the company said.

Chesapeake also announced that it was selling nearly all of its stake in CHK Cleveland Tonkawa LLC to FourPoint Energy LLC. Proceeds from that sale will be used to redeem preferred stock interests in the partnership, which will reduce dividend payments by $75 million per year.

Other adjacent properties are also being sold for $90 million in cash.

“We think the moves are prudent, but also signal [the company’s] concern that market weakness is likely to continue,” write Gimme Credit analyst Philip C. Adams in an afternoon comment released Tuesday.

Bombardier bombs

Bombardier, a Montreal-based aircraft and train manufacturer, saw its debt sliding downward as concerns about the business jet market ramped up.

“The stock and bonds were both plunging,” a trader said.

The trader said the 7½% notes due 2025 declined nearly 4 points to 78¾, while the 6% notes due 2022 dropped 4 points to 79.

Another tranche of the 2022 paper lost 10 points, ending at 80½, the trader said. He noted that the issue hadn’t traded in several weeks.

The weakness in the name came as aviation parts manufacturer B/E Aerospace said demand for large-cabin executive planes was declining, which was weighing on its own bottom line.

In addition, Bombardier reportedly held an investor call on Wednesday. While the call was characterized as occurring within the normal scope of business, one news outlet reported that some bondholders were concerned about the company’s ability to pay its long-term obligations, given the challenges it has had selling its new C series aircraft.

Bombardier is expected to release its latest quarterly figures on July 30.

Fannie, Freddie busy, better

Fannie Mae and Freddie Mac preferreds were bucking the day’s downward trend as the market reacted to the latest news regarding lawsuits brought against the government by shareholders.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 2 cents to $4.42, with 3.88 million shares trading. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were up a penny at $4.43, on trading of about 3.89 million shares.

On Tuesday, Judge Margaret Sweeney of the Federal Claims Court in Washington D.C. approved a motion brought by Fairholme Funds to force the U.S. Treasury to release all discovery documents related to the decision to place the GSEs into conservatorship.

On the news, Richard Bove, a lauded analyst with Rafferty Capital Markets, deemed the decision a “big win” in a note to clients.

“It has always been my belief that this mediation will result in a settlement giving shareholders their ownership rights back,” Bove wrote. “This case is now alive again in three courts any one of which could find in Fairholme’s and all other shareholder’s favor.

“The next hoped for step is for one of these three courts to unseal the documents so that the public can see what has happened in the historical discussions between the White House, the Treasury Department, and the Federal Housing Finance Agency concerning Fannie Mae’s status.”

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