Distressed bonds pare gains, but still firm for day; crude oil gains boost sector; Linn mixed

By Stephanie N. Rotondo

Phoenix, Aug. 25 – There was a “muted response in the bond world,” a trader said Tuesday, as the broader markets recovered the previous day’s gains – and then lost them all and more.

“The end of the day was not good,” the trader remarked, noting that “lingering concerns” about the global economy – particularly China – remained.

The market’s initial rally came after China’s central bank said it cut its one-year lending rate, a move aimed at bolstering liquidity and supporting the economy. The bank made the decision to cut rates following heavy losses in the Asian markets, which then bled into the global markets on Monday, causing hefty losses in U.S. equities.

A rebound in crude oil prices was also pushing things up. Benchmark crude had dropped over 5% in Monday trading, but finished up over 2% on Tuesday.

As for the distressed debt space specifically, “things were up a good bit,” a trader said, though he added that “bids were definitely fading” by the end of business.

A second trader reported that bid-wanted lists were starting to circulate toward the close.

With the rebound in oil prices, names like Chesapeake Energy Corp. “saw a little rebound with the rest of the oil and gas field,” a trader said.

The 5 5/8% notes due 2020 closed up 2½ points to 77, he said, as the 5¾% notes due 2023 inched up half a point to 71.

At another desk, the 6 5/8% notes due 2020 were seen a point higher at 77.

California Resources Corp.’s 6% notes due 2024 were also firmer, rising over a point to 69 1/8.

Linn Energy LLC, however, saw its bonds finishing mixed on news the company’s chief financial officer was stepping down.

One trader said the 6½% notes due 2019 closed half a point better at 45. But the 7¾% notes due 2021 were pegged at 41¾, down 6 points from the middle of last week.

The 6¼% notes due 2019 were also weaker, ending off 2½ points at 42¾, according to the trader.

“It doesn’t look like they rallied at all,” another trader said of the bonds. He placed the 7¾% notes in a 42 to 43 context, which compared to 42½ to 43½ previously.

Late Monday, the Houston-based oil and gas company said Kolja Rockov was leaving his post as CFO to pursue opportunities.

David Rottino, chief accounting officer, will replace Rockov, effective immediately.

Fortescue recovers

Fortescue Metals Group’s debt rebounded as well on Tuesday, following a disappointing earnings release on Monday that had put pressure on the bonds.

A trader deemed the 9¾% notes due 2022 a point better at 91½. He also called the 6 7/8% notes due 2022 1½ points higher at 60.

A second source placed the 6 7/8% notes at 60½ bid, up 2½ points.

Yet another source said the 9¾% notes had put on 2 to 3 points during the session, trading up to a 91 to 92 zip code. However, he said the issue “went out straddling 90,” which was “still up a little bit on the day, but it definitely gave back a bunch.”

For fiscal 2015, the iron ore producer 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.

© 2015 Prospect News.
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