Distressed debt lifted with equities as GDP grows; crude oil gains boosts sector; Peabody soft

By Stephanie N. Rotondo

Phoenix, Aug. 27 – Distressed bonds were “pretty strong across the board” as the equity markets rallied again.

Stocks were swinging higher after the Commerce Department reported a 3.7% GDP gain in the second quarter.

The GDP growth exceeded estimates of 2.3%. As the markets improved on the news, so did crude oil prices, which shot up to over $40 a barrel in early trading. Prices for the commodity were further pushed up after data showed a drawdown of inventory at the Cushing, Okla. delivery point.

News that China was selling some of its U.S. Treasury holdings in order to raise dollars to support the yuan was also helping the markets, as the effort seemed to put investors at ease.

With the gains in oil, oil and gas names were busy and better on the day. But away from that space, Peabody Energy Corp. debt was active and mostly weaker as investors reacted to news regarding the hiring of restructuring advisors.

Oil and gas bonds improve

A trader said California Resources Corp.’s $2.25 billion of 6% notes due 2024 traded up big “on the rebound in oil.”

The trader pegged the issue at 74¼, up nearly 5 points on the day.

Most oil and gas bonds were also firming during trading, though not nearly as much as the CalRes issue. That paper tends to move more, given the size of the issue.

Energy XXI Ltd.’s 11% notes due 2020, for instance, gained only 1¼ points, according to a trader, ending at 60¾.

Comstock Resources Inc.’s 10% notes due 2020 were meantime up half a point at 77¾.

Some riskier oil and gas credits, however, did not far as well.

SandRidge Energy Inc. was one such name, as a trader deemed the 7½% notes due 2023 off a touch at 26¾.

Linn Energy LLC was another name that went negative. A trader saw the company’s 6¼% notes due 2019 falling over a point to 40½.

Peabody pressured

Investors continued to digest news from Wednesday regarding Peabody Energy’s signing of Lazard Ltd. as a restructuring advisor.

For the most part, the coal producer’s debt remained weak.

A trader said there were “loads of trades” in the 10% notes due 2022, which fell a quarter-point to 39¾. The 6% notes due 2018 drifted off almost a point to 31¼, the trader added.

Also softer were the 6½% notes due 2020, which dipped a point to 25¾.

However, the 6¼% notes due 2021 were seen rising over half a point to 25 1/8.

The trader said that issue traded “over 40 times.”

Like its sector peers – several of whom are currently in bankruptcy – Peabody has struggled amid a cheap coal market and declining demand. With $6.3 billion in debt, the company is looking at ways it can improve its bottom line. Rumor has it that a debt swap is the more likely option.

© 2015 Prospect News.
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