SandRidge swings to a loss, bonds weaken; oil and gas debt declines; Fannie, Freddie firm

By Stephanie N. Rotondo

Phoenix, Aug. 6 – There was more weakness in the distressed oil and gas space on Thursday, spurred by yet another decline in crude oil prices and disappointing earnings.

Benchmark crude prices dropped nearly 1% during the session, nearing a six-year low. The drop came as oversupply concerns grew, especially as the busy summer-driving season neared its end.

As for earnings, SandRidge Energy Inc. reported a $1.4 billion loss for the quarter on Thursday.

On the heels of the results, one market source pegged the company’s 7½% notes due 2021 at 28¼ bid, down almost a point on the day.

Another source saw that issue at 27½, down from 28. That source also saw the 8¾% notes due 2020 in a 29 to 30 zip code, down from a 30 to 30½ context on Wednesday.

Earnings per share came to $2.78. By comparison, net loss for the same quarter of 2014 was $33 million, or 10 cents per share.

On an adjusted basis, SandRidge posted a loss of $17.8 million, or 3 cents per share. That compared to a profit of $25.7 million, or 4 cents per share, the year before.

Revenue meantime fell to about $230 million from $375 million.

Despite the larger loss, SandRidge did note that production was up 27%, resulting in an increase in its full-year guidance. The Oklahoma City-based company is expecting to produce between 29 million and 30.5 million barrels in 2015, up from previous guidance of 28 million to 30.5 million barrels.

Additionally, the company said it had improved its capital structure. The $1.25 billion issuance of second-lien debt in June helped to reduce the company’s borrowing base on less restrictive covenants.

But SandRidge wasn’t the only oil and gas producer to feel the day’s pain.

Chesapeake Energy Corp.’s 6 5/8% notes due 2020 dropped another 4½ points to 83 bid, a market source said. The paper had lost ground on Wednesday after the company reported a loss of $4.15 billion, or $6.27 per share.

The loss – which compared to a profit of $145 million, or 22 cents per share, the previous year – was due in large part to a $4.02 billion write-down on certain assets.

Linn Energy LLC’s 7¾% notes due 2021 were also softening, with a source placing the issue at 50 bid.

That was down over 2 points on the day.

For its part, Linn reported a loss of $379 million, or $1.12 per unit, on July 30.

Fannie, Freddie rebound

In other earnings news, Fannie Mae and Freddie Mac paper recovered from its earlier weakness after Fannie came out with its quarterly results.

“Fannie and Freddie are slightly weaker from when they ran up the other day,” a trader said at mid-morning, referring to gains posted after Freddie released its earnings.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 20 cents, or 4.17%, to $5, while Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) improved by 30 cents, or 6.25%, to $5.10.

In the second quarter, Fannie saw net income of $4.6 billion, up from $3.7 billion the year before.

The earnings marked the 14th consecutive profitable quarter for the mortgage giant.

Due to the government’s conscription of most of the GSE’s profits, Fannie will make a $4.4 billion payment to the U.S. Treasury next month. All told, Fannie will have paid dividends of $142.5 billion.

The firm received $116 billion in bailout funds in September 2008.

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