Distressed bonds fall amid market tumult; oil and gas off with crude; coal weakens; FMG drops

By Stephanie N. Rotondo

Phoenix, Aug. 24 – The distressed debt market was off in Monday trading, though the space held up better than the broader markets.

“There was a little bit of carnage, but not nearly as bad as the equity markets,” one trader said.

He said bonds were down about 1½ points overall.

Another trader saw the market off 2 to 3 points, however.

“A lot of stuff obviously got clobbered,” he said. He did agree that the bond market held in better than equities, opining that it was because “there’s probably more liquidity and panicking in the equity markets.

“People in our market don’t want to incite panic – and they don’t want to hit bids that are down 2 to 3 points.”

And there did appear to be limited liquidity in the bond market, according to a trader.

“Everybody was just sitting on their hands,” he said. “If there were decent bids, they hit them.”

The day’s overall drop came as China experienced yet another equity sell-off, increasing fears of an economic slowdown in the world’s second-largest economy.

Still, the weakness in the market – which has been raging since last week – has caused some to opine that an interest rate hike from the Federal Reserve will be pushed off until December.

“There’s no real reason to raise rates now, except to just raise rates,” a trader said.

The Dow Jones industrial average ended down more than 588 points, which was better than the intraday lows.

U.S. benchmark crude oil prices were also weaker, dropping 5.69% to $38.15 per barrel.

In the wake of the market’s plunge and oil’s continued slide, distressed oil and gas names were also seen sliding.

“It’s a little bit market, a little bit oil,” a trader said of the sector’s declines.

California Resources Corp.’s 6% notes due 2024 dropped 2½ points to 68½, according to the trader. The 5½% notes due 2021 fell 2¼ points to 71, while the 5% notes due 2020 dove 3½ points to 74.

Comstock Resources Inc.’s 10% notes due 2020 were also softer, losing nearly 4 points to end at 75¼.

In SandRidge Energy Inc. paper, a trader saw the 8¾% notes due 2020 crashing down over 4 points to 59¼. Another market source called the 7½% notes due 2021 down 2½ points to 26½.

Pacific Rubiales Energy Corp. – now known as Pacific Exploration and Production Corp. – was meantime deemed the day’s “biggest loser” by one trader.

“That’s got some other [emerging market] issues too,” he said.

The trader said the 5 3/8% notes due 2019 lost “almost 9 points” to end at 51. Both the 5 5/8% notes due 2025 and the 5 1/8% notes due 2023 dipped 5 points to 45 and 46, respectively.

Coal under pressure

The oil and gas arena wasn’t the only sector to get hit Monday.

“Commodity stuff just got whacked,” a trader said.

In the coal space, a trader saw Consol Energy Inc.’s 5 7/8% notes due 2022 declining over a point to 68½. A second source placed the 8% notes due 2023 at 74½ bid, down over 2 points on the day.

Murray Energy Corp.’s 11¼% notes due 2021 were also losing ground. One trader deemed the issue off half a point to 44½, while a second trader said the debt dropped “another point or so” to 44.

The second trader noted that the issue was “active.”

And Peabody Energy Corp.’s 10% notes due 2022 were pegged at 41.

Fortescue posts lower profit

Fortescue Metals Group bonds finished the session lower, but “probably bounced off the bottom,” a trader said.

The weakness came on the heels of the iron ore producer’s earnings.

The trader saw the 9¾% notes due 2022 closing off over 2½ points to 90. The 8¼% notes due 2019 meantime dropped 4½ points to 73.

At another desk, a trader said the 9¾% notes finished around “89-ish,” which compared to 92 previously.

He said the company’s other bonds were all down 2 to 3 points.

A third market source called the 6 5/8% notes due 2022 down 5 points to 58 bid.

For fiscal 2015, Fortescue saw its annual profit drop 88% to $316 million from $2.7 billion.

The lower profit came even as the company shipped more coal during the year – 165.4 million tons, up 33% year over year.

Revenue fell 27% to $8.6 billion.

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