Distressed debt fall continues ahead of Fed; energy names slip; Fannie, Freddie drop more

By Stephanie N. Rotondo

Seattle, Dec. 14 – There was “more fallout” in the distressed debt market on Monday, according to a trader.

But as the space continued to retreat – driven in large part by commodity prices – the trader noted that there was “not a ton of trading” among distressed bonds, though higher-rated junk bonds remained busy.

As for the day’s declines, they were initially spurred by an over 1% drop in crude oil prices, which sent the commodity to levels not seen in seven years. However, prices began to rebound, eventually ending up 1.74% for the day.

The rally was attributed in part to speculation that the commodity was oversold.

Also playing a role was the Federal Reserve’s upcoming meeting on Wednesday, in which it is expected that the central bank will increase interest rates for the first time since 2008.

In the day’s dealings, Chesapeake Energy Corp. was resuming its downward slide along with the weaker market.

“It continues to get beat up,” a trader said. “They are just getting slaughtered.”

The trader saw the 6½% notes due 2017 falling to 57½ from 62 on Friday. The 3¼% notes due 2016 meantime hit lows with a 93 handle, which compared to a 96 handle on Friday.

As for longer-dated issues, they were trading in the high-20s, the trader said.

Another market source pegged the 6 5/8% notes due 2020 at 29½, down 4½ points on the day.

Earlier this month, the Oklahoma City-based oil and gas producer launched a private debt exchange of up to $1.5 billion among 10 series of notes maturing 2017 through 2023.

Also in the oil and gas realm, Denbury Resources Inc.’s 6 3/8% notes due 2021 retreated 9 points to 37½.

There was no credit-specific news out to act as a catalyst.

Elsewhere in the energy space, coal miner Murray Energy Corp. saw its 11¼% notes due 2021 slipping “another point” to 18½, according to a trader.

“They keep dipping,” the trader said.

Fannie, Freddie fall

Fannie Mae and Freddie Mac paper continued to drop Monday, “probably on some chatter about a bill in the Senate that would basically force the Treasury to hold them in conservatorship” barring congressional approval.

“Old news,” the source said, as the bill has been a topic of conversation for several months now.

Both Fannie’s 8¼% series S fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FNMAS) and Freddie’s 8 3/8% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) declined 20 cents, or 5.41%, to $3.50.

In mid-September, U.S. senators Bob Corker (R-Tenn.), Mark Warner (D-Va.), David Vitter (R-La.) and Elizabeth Warren (D-Mass.), all members of the Senate Banking, Housing and Urban Affairs Committee, reintroduced the “Jumpstart GSE Reform Act.” The bill would prohibit any increase in the guarantee fee from offsetting other government spending while also prohibiting the sale of Treasury-owned senior preferred shares in Fannie and Freddie without congressional approval and significant housing finance reform.

99 Cents’ numbers disappoint

99 Cents Only Stores LLC’s term loan retreated in the secondary market on Monday after third-quarter numbers were released, according to a trader.

The term loan was quoted at 60 bid, 65 offered, down from 70 bid, 75 offered on Friday, the trader said.

For the third quarter of fiscal 2016, the company had a net loss of $152.6 million, compared to a net loss of $3.8 million in the prior year.

Net sales for the quarter were $491.5 million, compared to $478.3 million in the third quarter of fiscal 2015.

And, adjusted EBITDA for the quarter was $5.1 million, versus $27.1 million last year.

99 Cents is a City of Commerce, Calif.-based operator of extreme-value retail stores.

Sara Rosenberg contributed to this article

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