Oil and gas names improve amid crude rally; Greek bank preferreds rise; Fannie, Freddie mixed

By Stephanie N. Rotondo

Phoenix, Sept. 16 – Distressed bonds again took a backseat to the high-yield market, as Sprint Corp. and Frontier Communications Corp. dominated overall trading.

One trader noted that “Sprint got downgraded [by Moody’s Investors Service] and that dragged down Frontier.”

Moody’s cut Sprint’s credit rating to B3 from B1 on Tuesday, citing “brutal competition” and a highly leveraged capital structure. Come Wednesday, the company’s debt was down “mostly 2 to 3 points,” a trader said – though in some cases, the losses were larger.

Frontier’s new issues also retreated a bit, as did the bonds of Dish Network Corp.

Distressed oil and gas names were mostly trending better as domestic crude oil prices popped over 5.5% on the day. The commodity’s price gain came on the heels of the latest report from the U.S. Energy Information Administration, which showed a larger-than-expected drawdown of stockpiles last week.

In the world of distressed preferreds, National Bank of Greece SA shares were seen rising as investors digested reports that the European Central Bank was slowly cutting back its emergency funding lifeline to all Greek banks. Meanwhile, Fannie Mae and Freddie Mac paper was mixed as a reform bill was reintroduced on Wednesday on the Senate floor.

Crude gains pushes up sector

Oil and gas names mostly firm in Wednesday trading as new data showed a larger-than-expected drawdown of U.S. crude inventories.

The data also resulted in big gains for crude prices, with domestic crude jumping 5.52% on the day.

A trader said California Resources Corp.’s bonds rebounded following a downgrade from Moody’s on Tuesday, as the 6% notes due 2024 ended at 68, which compared to levels around 65 previously. The 5% notes due 2021 and 5% notes due 2020 both finished 1¼ points better, according to the trader, at 68¾ and 70¼, respectively.

Even Energy XXI Ltd. – which had gotten hit on Tuesday following the company’s latest reserve report – regained ground. A trader saw the 7½% notes due 2021 inching up to 19¼.

Chesapeake Energy Corp.’s 5¾% notes due 2023 were similarly up a touch, closing around 76.

A second market source, however, saw weakness in a couple junkier names.

Linn Energy LLC, for instance, saw its 7¾% notes due 2021 slipping over a point to end at 30¾ bid. Consol Energy Inc. was another loser, with its 8% notes due 2023 falling a point to 79½ bid.

Among oil and gas preferreds Goodrich Petroleum Corp.’s 9.75% series D cumulative preferreds (NYSE: GDPPD) saw a huge percentage gain, rising 12 cents, or 7.27%, to $1.77. The 10% series C cumulative preferreds (NYSE: GDPPC) ended up 3 cents, or 1.71%, at $1.78.

Dividends on both of those issues were suspended on Aug. 28.

Vanguard Natural Resources LLC’s 7.75% series C cumulative redeemable preferred units (Nasdaq: VNRCP) were another big percentage gainer, closing up 97 cents, or 5.25%, to $19.46. The 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) meantime put on 46 cents, or 2.57%, to end at $18.37.

And, Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) improved by 57 cents, or 4.31%, to $13.81.

In its latest weekly report, the U.S. Energy Information Administration said crude inventories fell 2.1 million barrels last week, 1.9 million barrels of which were taken from the Cushing, Okla.-based delivery point. Investors had been pushing oil prices up all week ahead of that announcement, after Genscape forecast a 1.8 million-barrel draw from Cushing on Monday.

Analysts polled by Reuters had expected that inventories would gain 1.2 million barrels.

Still, the news wasn’t all good, as the EIA also said that gasoline and distillate stockpiles were up about 3 million barrels.

Greek bank on ‘upward swing’

National Bank of Greece’s $2.25 series A noncumulative preference shares (NYSE: NBGPA) have “been on an upward swing,” a market source said and Wednesday’s session was no different.

The shares improved 57 cents, or 8.91%, to $6.97.

The source also noted that volume in the name has also been rising.

Earlier in the week, Greek banks released data that showed the European Central Bank has been curtailing its emergency funding to the nation’s struggling financial system. The move indicates that stability is returning to the country – and at a good time, as elections are slated for Sept. 20.

Fannie, Freddie busy

On Wednesday, Senators Bob Corker, Mark Warner, Elizabeth Warren and David Vitter reintroduced the “Jumpstart GSE Reform Act.”

The bill – which “got yanked last year,” according to a source – would prohibit any increase in mortgage guarantee fees to be used for government spending and would also require the U.S. Treasury to hold onto its preferred stock stake in Fannie Mae and Freddie Mac. The Treasury could only sell off its holdings with congressional approval.

The legislation is aimed at proving an incentive for Congress to make housing finance reform a priority.

Earlier in the week, Warren reportedly pulled her support for a similar bill, as revised language would have allowed guarantee fees to be used to cover government spending in other areas. According to reports, Warren was concerned that any potential increase in fees would then be passed on to low-income borrowers.

And while trading in Fannie and Freddie preferreds was on the busier side, according to a source, there wasn’t much movement. The source speculated that the news had already been priced in.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were unchanged at $4.78, while Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) gained 3 cents, closing at $4.73.

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