Trader: Little impact as Fed holds steady; Samson files for bankruptcy; Paragon hires advisors

By Stephanie N. Rotondo

Phoenix, Sept. 17 – The distressed debt market was mixed Thursday as investors kept eyes on the Federal Reserve’s latest policy announcement, as well as topical issues in the high-yield space.

The Fed’s two-day policy meeting concluded around midday, with the announcement released at 2 p.m. ET. Citing global economic concerns and domestic financial market volatility, the central bank chose to keep interest rates steady.

The vote was nearly unanimous at 9 to 1. However, the Fed did note that an increase could still occur before the end of the year.

“People weren’t petrified,” one trader said of reaction to the decision. He noted that there was no surge in activity after the announcement was made.

“I feel like it’s not going to impact us that much,” said another trader, adding that the news “seemed like” a non-event.

“We saw a few things rally afterwards, but not that much.”

Nigel Green, chief executive officer of deVere Group, an independent financial advisory firm, said in a prepared statement that the lack of action was in itself fueling global market uncertainty and speculated that the markets would be volatile either way.

“A rate raise hasn’t happened this time, but it is on its way, it will happen eventually and probably as Janet Yellen, the Fed’s chair, hinted before the end of the year,” Green said. “Therefore, the countdown clock has simply been reset. Of course, this is a trigger for short-term volatility.”

Green also noted that as the U.S. economy has strengthened, the decision to keep rates at historic lows was due more to concerns about China.

“This concern over global developments is bound to prompt uncertainty too,” he said.

In the high-yield universe, Sprint Corp. and Frontier Communications Corp. continued to garner most of the day’s action. Cablevision Systems Corp. joined that list as the market learned the company was being acquired by Altice NV for $10 billion.

As for the day’s distressed dealings, Samson Resources Corp. announced that it had filed for bankruptcy late Wednesday. Come Thursday, its debt was seen as unchanged to weaker.

Paragon Offshore plc, another oil and gas name, meantime announced that it had hired advisors to look into restructuring options. Those bonds were also called unchanged to a little lower.

Samson files, bonds slip

Samson Resources, a Tulsa-based oil and gas company owned by private equity firmed KKR & Co., announced it had filed for Chapter 11 protections on Wednesday.

Come Thursday trading, a trader saw the 9¾% notes due 2020 falling almost half a point to trade at 0.58.

“The bonds were like 0.5 to 1,” a second trader said, noting that he saw little activity in the name. “There’s really nothing doing there.”

Samson’s filing adds to a growing list of oil and gas companies that have sought court protections amid an oil price slump. Hercules Offshore Inc. filed for bankruptcy just last month and Fitch Ratings said there have been six energy sector defaults in the last six weeks.

Under Samson’s prepackaged plan, junior lenders – at least 68% of which are already on board – will wind up with a majority of the company’s new equity. Unsecured bondholders will see their holdings virtually wiped out, receiving only 1% of the new stock.

All told, the plan will extinguish over $3.25 billion in debt from the company’s books.

Paragon hires advisors

Paragon Offshore could soon be following in Samson’s footsteps, as the company said it had hired Lazard Ltd. and Weil, Gotshal & Manges LLP to review its strategic alternatives.

In response to the news, a trader said the 7¼% notes due 2024 were “down about another point and change,” trading in a 16½ to 17 range.

He said the issue had printed at 18 on Wednesday.

However, a second market source deemed the notes “kind of unchanged,” seeing the paper close at 16¾. He noted that the bonds had been quoted wide at 15 bid, 20 offered.

Paragon is a Houston-based provider of offshore drilling rigs.

Fannie, Freddie mixed

Fannie and Freddie paper continued to be active Thursday, though the GSE preferreds ended mixed.

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) rose 6 cents, or 1.27%, to $4.79.

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.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.