Distressed oil bonds shake off crude declines, volatility; Peabody rises; Fannie, Freddie fade

By Stephanie N. Rotondo

Phoenix, Sept. 1 – Volatility remained in the market as September started, waging war yet again on equities and oil prices.

As for the distressed debt space, a trader said Tuesday’s market “had a very heavy feel to it, but not a lot of stuff was trading down.”

The trader noted that oil did “an about-face,” with domestic crude dropping nearly 9% on the day. The declines came amid continued concerns about China, as a U.S. manufacturing report that showed a contraction in August.

Surprisingly, several distressed oil and gas names actually saw their bonds rising despite the oil slide.

“I don’t know how these energy names are up,” one trader said.

Another trader opined that short-covering could be pushing prices higher.

Breitburn Energy Partners LP’s 7 7/8% notes due 2022 closed the day up over a point, according to a trader, at 44¼. However, the company’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) weakened 61 cents, or 4.16%, to $14.17, losing all of the ground gained in the previous session.

Energy XXI Ltd.’s 7½% notes due 2021 were also seen higher at 20 3/8. That was a gain of a point, a trader said.

A second trader saw the 11% notes due 2020 closing between 62 and 63, adding that “some trades were even higher” during the session.

At another desk, Chesapeake Energy Corp.’s 6 5/8% notes due 2020 were pegged at 81 bid, up a point. SandRidge Energy Inc.’s 7½% notes due 2021 meantime edged up half a point to 29½.

While distressed oil and gas bonds did see some improvement, the sector’s preferred stock did not fare as well.

Goodrich Petroleum Corp.’s 10% series C cumulative redeemable preferreds (NYSE: GDPPC) and 9.75% series D cumulative redeemable preferreds (NYSE: GDPPD) finished lower again, just one day after the company said it was cancelling its dividends.

The Cs closed down 36 cents, or 15.48%, at $1.965. The Ds ended off 53 cents, or 27.18%, at $1.42.

Meanwhile, Vanguard Natural Resources LLC’s 7.875% series A cumulative redeemable preferred units (Nasdaq: VNRAP) dropped 98 cents, or 4.44%, to $21.11, while the 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) declined 33 cents, or 1.85%, to $17.54.

Peabody firms

Coal producer Peabody Energy Corp. was also seen moving up in an otherwise weak day.

There was no fresh news to help give the debt a boost, though a trader noted that the company’s stock “had been running [up] for awhile, but they gave back some today.”

Short covering was one theory as to the bonds’ rise, as was recent news that the company had hired Lazard Ltd. to review its restructuring options.

“People are trying to figure out [what a restructuring might look like],” a trader said.

In Peabody paper, a trader saw the 10% notes due 2022 inching up a quarter-point to 41½.That trader also saw the 6% notes due 2018 closing up a point at 34½ and the 6¼% notes due 2021 rising half a point to 27.

A second market source place the 6½% notes due 2020 at 28 bid, up 1½ points on the day.

Peabody stock (NYSE: BTU) dropped 50 cents, or 18.52%, to $2.20.

Fannie, Freddie decline

Fannie Mae and Freddie Mac preferreds “pulled back,” according to a trader. The paper had improved on Monday following comments from analysts Dick Bove that opined a White House settlement was on the horizon. But a Wall Street Journal piece out later in the previous session indicated that such expectations are a pipe dream, given that the government has already had several victories as it fights off the GSEs’ shareholders.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) ended off 15 cents, or 3.04%, at $4.78, effectively erasing nearly all of its Monday gains. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) meantime dropped 21 cents, or 4.28%, to $4.70.

The latter issue gave back all of its previous gains and then some.

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