Chemical bonds gain; First Quantum debt rises on debt reduction plan; oil, gas names climb

By Stephanie N. Rotondo

Phoenix, Oct. 6 – The distressed debt market remained on an upward course in Tuesday trading, though most of investors’ focus continued to be on higher-rated names.

Chemical companies were seen rebounding after spending much of the last couple of weeks under pressure. One trader attributed the recent weakness to Olin Corp.’s pricing of a $1.22 billion two-part senior notes offering last week.

“That really repriced the market,” he said.

Meanwhile, First Quantum Minerals Ltd. got a sizable boost as investors responded to the company’s debt reduction plan. The mining and metals company announced the plan – aimed at reducing debt by $1 billion – late Monday.

In the oil and gas space, bonds were rallying across the board as domestic crude prices jumped up more than 5% on the day. Even Chesapeake Energy Corp. was trending higher, despite a ratings downgrade from Moody’s Investors Service.

Chemical names rally

The chemical space was also rebounding during Tuesday trading.

A trader saw Tronox Ltd.’s 6 3/8% notes due 2020 inch up to 59¾. Another trader said Tronox’s debt was “better,” seeing the notes trade as low as 57¾, but going out around 61.

“So that’s up like 3 points intraday,” he said.

The second trader speculated that recent weakness among chemical companies was due to Olin’s pricing of a $1.22 billion two-part senior notes offering last week.

That deal included $720 million of 9¾% notes due 2023 and $500 million of 10% notes due 2025. The total deal came downsized and the coupons were massively increased from initial talk.

But with that deal, the entire chemical space got repriced, the trader said.

“So they are rebounding now,” he said.

First Quantum lauds debt plan

First Quantum Minerals announced a debt reduction plan late Monday that aims to reduce overall debt by $1 billion by the end of the first quarter of 2016.

Come Tuesday trading, a trader said the company’s bonds were “up a bunch.”

He called the notes 5 to 6 points better on the day, pegging the 7% notes due 2021 at 60 and the 6¾% notes due 2020 at 70.

Both of those issues are Rule 144A.

“They announced plans for asset sales to reduce debt,” the trader explained. “So that’s what is driving that one.”

In its press release announcing the plan, the Vancouver, B.C.-based company said it was also looking at other strategic options that would help it reach its goal.

The company also said that it had inked a revised precious metal stream agreement with Franco-Nevada Corp., under which First Quantum expects to receive an initial contribution of between $330 million and $340 million during October. Additionally, First Quantum reduced its planned capital programs and realized $215 million from the settlement of the Eurasian Natural Resources Corp. plc promissory note with a further $85 million to be received in October.

Oil, gas bonds up

A hefty spike in domestic crude oil prices was mostly helpful to the oil and gas arena on Tuesday.

A trader saw Chesapeake Energy’s 5¾% notes due 2023 holding steady at 66¾. Another market source, however, called the 6 7/8% notes due 2022 up almost 2 points at 73½.

Another trader said the 5¾% notes ended “close to 67,” which he said was “up about a point.”

Chesapeake managed to end positive even as Moody’s downgraded the company to Ba2 from Ba1.

Moody’s cited concerns about cash flow, given the depressed prices of natural gas and oil.

Elsewhere in the sector, California Resources Corp.’s 6% notes due 2024 were called over 2 points better at 64¼.

Energy XXI Ltd.’s 11% notes due 2020 meantime gained “almost 4 [points],” a trader said, ending at 52½.

That trader said Penn Virginia Corp.’s 8½% notes due 2020 were “barely changed,” trading at 23¾. That was a gain of about a quarter-point, the trader said.

Penn Virginia announced late Monday that it had agreed to sell non-core assets in South Texas for $13 million. The buyer was not disclosed.

Domestic crude oil prices shot up nearly 5.25% on Tuesday, as new data suggested that supplies would be tighter going into 2016. That viewpoint was coupled with increasing hopes that Russia and other big oil producers would be willing to curb their own production.

Fannie, Freddie firm

Fannie Mae and Freddie Mac preferreds were “very active because of this conference that was held in Washington,” a market source reported.

The source was speaking about two panels hosted by the Bipartisan Policy Center on GSE reform, in which senators Bob Corker and Mark Warner spoke about the need for such actions.

Seven years after the government took Fannie and Freddie into conservatorship, little has been addressed in terms of GSE or housing reform. Both Corker and Warner have tried to speed up the process, introducing legislation aimed at doing exactly that.

Still, it’s been an uphill battle.

“Two things we didn’t fully appreciate in drafting housing policy: One is the strong belief in the House that we ought to get government completely out of the backstop role,” Warner said during his part of a keynote panel address. “On my side, some of the reluctance came from the progressive groups, thinking the status quo was better than some of the (solutions being considered.)”

Corker went so far as to say that it’s unlikely any action would be taken in the next year and a half – that is, until elections are over.

“There’s a small consensus that think it is positive to have this issue out front,” a market source said of the investors that might have had a hand in pushing up the GSE preferreds. Still, the bill introduced by Corker and Warner “ends badly for GSE guys,” as it would ultimately lead to a liquidation of the agencies – and likely without any recovery for preferred holders.

Still, the preferreds ended with a positive tone.

Fannie’s 8¼% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) moved up 26.5 cents, or 5.5%, to $5.08, while the 8¼% series T noncumulative preferreds (OTCBB: FNMAT) gained 22 cents, or 3.2%, to close at $7.25.

Freddie’s 8 3/8% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) improved 36 cents, or 7.56%, to $5.12.

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