Distressed bonds follow broad markets lower; oil and gas names weak again; Bombardier gains

By Stephanie N. Rotondo

Phoenix, Aug. 21 – The distressed debt market came crashing down with the broader markets Friday amid continued fears of emerging markets and ongoing pressure on crude oil.

In the straight equity market, the Dow Jones industrial average was down more than 530 points. In the overall high-yield space, the KDP High Yield Index was seen falling to fresh 52-week lows.

Concerns about China’s slowing economy grew Friday as new manufacturing data showed the largest contraction in over six years. U.S. benchmark crude oil meantime dropped sub-$40 per barrel as a report showed U.S. drillers added more rigs into production last week, the fifth week in a row.

Oil prices did recover some ground, however, ending north of $40.

Despite oil’s minor recovery, most distressed oil and gas names continued to trend lower.

SandRidge Energy Inc.’s 7½% notes due 2021 were pegged at 28 bid, down a point on the day. Chesapeake Energy Corp.’s 6 5/8% notes due 2020 were also weaker, losing nearly a point to end at 76 bid.

Linn Energy LLC’s 7¾% notes due 2021, however, managed to inch up a shade to 45 bid, according to one market source.

Away from oil and gas, Bombardier Inc.’s debt was ticking up following news out late Thursday regarding the company’s belabored CSeries aircraft.

Bombardier improves

Bombardier’s 7¾% notes due 2020 closed up a point at 79¼, according to a market source.

That issue had fallen as much as 5 points to 78 in Wednesday trading.

The modest rebound came after the Canadian aerospace and transportation company said late Thursday that the certification process on its CSeries aircraft was over 80% completed.

That project has not gone well for the company, plagued by delays and higher-than-usual cash burn.

Last week, Fitch Ratings downgraded the company and its debt to B from B+, citing concerns about cash flow and liquidity.

The company has struggled to maintain market share as it has developed its CSeries aircraft. Costs associated with that program have been higher than expected and the results have not followed suit.

Additionally, Bombardier has cut production on its Global 5000 and 6000 series, which have historically turned a profit. The Global 7000 program – another potential moneymaker – was meantime delayed.

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