Oil and gas bonds decline as crude prices drop; AK Steel falls on cheap steel imports problem

By Stephanie N. Rotondo

Phoenix, Sept. 11 – Though the distressed debt market was mostly positive as the week came to a close, oil and gas names were under pressure again as oil prices dropped 2.5%.

Away from oil, a trader said a new $6.6 billion high-yield bond issue from Frontier Communications Corp. was “all the action.”

The price of domestic crude suffered as Goldman Sachs analysts lowered their outlook on the commodity due to oversupply concerns and worries about China’s economy.

Goldman cut its 2016 price forecast to $45 a barrel from $57 a barrel. However, the New York-based firm also noted that prices could fall as low as $20 a barrel.

“The oil market is even more oversupplied than we had expected and we forecast this surplus to persist in 2016,” Goldman said in a note published Friday.

In the oil and gas space, a trader said California Resources Corp.’s 6% notes due 2024 declined a deuce to 71½. Another market source pegged the issue in a 71 to 72 range.

Basic Energy Services Inc.’s 7¾% notes due 2022 meantime continued to retreat following the company recent operational update.

A trader deemed the debt down 3 points, trading at 55. The paper had declined 5 points in the previous session as investors reacted to the report, which showed that the company’s well servicing rig count held steady in August at 421. A rig utilization rate of 53% was better than that seen in July – 52% – but well below the 74% mark seen in August 2014.

Drilling rig days were also better month over month, but less than year-ago comparables.

Additionally, the company said that “due to the recent volatility we experienced in August and our outlook for September, we now expect that our third quarter 2015 revenues will be 3% to 5% lower sequentially.”

Breitburn Energy Partners LP was another softer name, as a trader called its 7 7/8% notes due 2022 down almost a point at 42½.

Comstock Resources Inc.’s 7¾% notes due 2019 closed at 30½, off half a point.

AK Steel stalls

Away from oil, there was another commodity that was coming into focus: steel.

In a report out Thursday, the U.S. International Trade Commission said domestic steel producers – such as AK Steel Corp. – could be hurt by imports of cheaper cold-rolled flat steel from at least seven countries, including China and the United Kingdom. As such, the panel elected to continue an investigation into the matter that could eventually lead to import duties on steel.

In response, AK Steel’s bonds were dwindling.

A trader said the 7 5/8% notes due 2020 closed at 60, down 6 points “from the end of August.” A second market source placed the issue at 61, off 3 points.

Yet another trader said both the 2020 paper and the 7 5/8% notes due 2021 were trading “around 61,” deeming that level “lower.”

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