Distressed debt market tanks with broader market; oil and gas names decline as crude tumbles

By Stephanie N. Rotondo

Phoenix, Sept. 28 – The distressed debt market ended in “a bloodbath” on Monday, according to a trader.

“Everything was down 1 to 3 points and there are no bids,” he said. “There’s still some stuff trading, but there weren’t a lot of buyers.”

“A lot of stuff got slaughtered today,” another trader said.

The space was following the broader markets lower amid continuing economic uncertainty – both globally and domestically – as well as concerns of a looming government shutdown if a budget fight cannot be avoided.

Oil and gas names were taking a hit, as domestic crude oil prices kicked off the week with a weaker tone.

West Texas Intermediate crude declined 2.47% on the day.

“Oil was off again so any natural gas or resource issues are going to be beat up again,” a trader said.

“A lot of commodity-related things got hit,” another trader remarked.

Among distressed oil and gas preferreds, Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) were down $1.36, or 7.08%, to $15.69.

“They are obviously having some serious credit problems,” a source said, noting the sector-wide struggles amid declining oil prices.

Magnum Hunter Resources Corp.’s 8% series D cumulative preferreds (NYSE: MHRPD) were meantime down $4.15, or 45.6%, at $4.95.

And, Goodrich Petroleum Corp.’s 9.75% series D cumulative preferreds (NYSE: GDPPD) were down 24 cents, or 19.67%, at 96 cents.

Given the volatile oil market, many companies have been struggling to stay afloat. As such, several have gone into preservation mode.

SandRidge Energy Inc. joined those ranks Monday, as the Oklahoma City-based company said it was suspending its dividend on the 7% convertible perpetual preferreds (OTCBB: SDRXN).

“Preservation of liquidity and prudent capital allocation are key issues for SandRidge in the current environment,” James Bennett, the company’s president and chief executive officer, said in a press release.

Those shares fell $3.65, or 44.79%, to $4.50. The common stock declined 3 cents to 27 cents.

“The equity got so low it didn’t make sense for them” to keep paying the dividend, a trader said.

As for the straight bonds, a trader said the 6 1/8% notes due 2023 dropped 2½ points to 66½. A second market source pegged the 7 ½% notes due 2021 at 22 bid, down a deuce.

Meanwhile, Chesapeake Energy Corp.’s 5 ¾% notes due 2023 were seen losing “almost 4 points,” ending at 64, according to a trader.

That trader also saw Consol Energy Inc.’s 5 7/8% notes due 2022 losing 2½ points to close at 66 ¾.

At another desk, a trader said California Resources Corp.’s 6% notes due 2024 were “hammered,” falling to 59 from 61 bid, 62 offered previously.

Fannie, Freddie decline

Fannie Mae and Freddie Mac preferred stock was busy and lower on the day as investors were “maybe speculating on legislative options now that Boehner has resigned,” a market source opined.

John Boehner announced his resignation on Friday. He will exit his Speaker of House position in October.

But the source also noted a Washington Post editorial that came out over the weekend. Though the piece had “nothing really new” to report, it was “pretty negative on GSEs,” the source said.

“It does call for abolishing Fannie and Freddie and replacing it with something new,” he said.

In particular, the editorial mentioned the recently reintroduced “Jumpstart GSE Reform Act,” which is aimed at preventing mortgage guarantee fee increases from being passed to borrowers and requires the U.S. Treasury to hold onto its preferred stake in the agencies, unless Congress approves selling it or some significant housing reform is taken.

“Though it would not create a new housing finance system, the bill would encourage lawmakers to stop procrastinating,” the editorial said.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) closed off 9 cents, or 1.88%, at $4.71. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) dipped 8 cents, or 1.67%, to $4.72.

© 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.