Distressed market mixed post-Fed; steel sector rises, oil and gas wanes; Avon improves

By Stephanie N. Rotondo

Seattle, Dec. 17 – The distressed debt market trended toward the mixed side on Thursday, just one day after the Federal Reserve opted to raise interest rates by 0.25%.

“Some things definitely felt a little better,” a trader said. But as stocks were “beaten up, it probably put a little bit of a damper on high yield.”

The steel space, for instance, saw some support in the wake of the U.S. Commerce Department’s announcement that it was imposing countervailing duties on cold-rolled steel from four countries.

Oil and gas names, however, were “still weaker,” the trader said.

Oasis Petroleum Inc.’s 6 7/8% notes due 2022, for example, traded down into the mid-60s, the trader said. That compared to levels around 70 on Wednesday.

“That was one of the more notable moves,” he said.

In distressed oil and gas preferreds, there was initially a modest rebound in paper, though by the bell, issues were mostly soft.

Goodrich Petroleum Corp.’s 10% series C cumulative preferreds (NYSE: GDPPC) were up in early trading but closed down 24 cents, or 4.26%, at 53 cents. Legacy Reserves LP’s 8% series B fixed-to-floating rate cumulative redeemable preferred units (Nasdaq: LGCYO) meantime dipped 4 cents to $5.11.

Also weaker were Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP), which declined 26 cents, or 4.82%, to $5.13.

A notable exception to the sector’s declines was Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP), which gained 53 cents, or 7.58%, to end at $7.52.

For its part, domestic crude prices sank nearly 2% on the day, trading sub-$35 a barrel. The weakness came as Genscape released its latest report, showing a 1.4 million barrel build at the Cushing, Okla., delivery point.

Also weighing on the commodity’s price were comments from OPEC that indicated the oil cartel did not expect to see a significant price increase in 2016, nor a significant decline in production.

AK Steel rises

AK Steel Holdings Corp.’s 7 5/8% notes due 2020 were deemed “better” on Thursday on news the Commerce Department would begin imposing countervailing duties on cold-rolled steel products from four countries.

A trader pegged the issue at 41. A second market source saw the issue ending at 40¾, up 1½ points on the day.

The Commerce Department ruled on Wednesday that imports of cold-rolled steel from Brazil, China, Russia and India were benefitting from unfair government subsidies and they should therefore be slapped with countervailing duties.

U.S. importers of steel from those countries will have to pay duties ranging between 4.45% and 227.29%, depending on which country of origin the steel came from.

China was the highest duty at 227.29%.

The Commerce Department is now planning on focusing on anti-dumping issues pertaining to those four countries, as well as South Korea, Japan and the United Kingdom. A ruling on that is expected by Feb. 23.

Avon gets a deal

A trader said Avon Products Inc.’s 5% notes due 2023 were “a little bit better,” trading around 70.

However, he added that there was “not a lot of volume” in the bonds.

It was reported Thursday that Cerberus Capital Management LP had agreed to a $605 million deal with the cosmetics company, in which Cerberus would buy 80% of the company’s North America business, as well as a 17% stake in the remaining portion.

The 80% stake will be split off into a private entity, while what is left will remain public.

Avon also said it was scrapping its dividend, choosing instead to use that cash to invest in the business.

Fannie, Freddie in retreat

Fannie Mae and Freddie Mac preferreds continued to dominate trading. Early Thursday, the GSE paper was unchanged to slightly better, possibly indicating that a recent sell-off was coming to an end.

Those hopes were dashed by the end of the day, as the paper closed lower yet again.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) dipped a nickel, or 1.45%, to $3.39. The preferreds were up a penny at mid-morning, trading at $3.45.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were unchanged at $3.45 at mid-morning but finished off 11 cents, or 3.19%, at $3.34.

This week, Congress agreed to a spending and tax bill that included a provision on the mortgage agencies. The provision prohibited the Treasury from a “recap and release” of the companies, requiring it to hold onto its preferred stake in the GSEs until at least 2018 or until housing reform was done.

The Treasury has fought against moving toward a “recap and release” approach, though shareholders were pushing for such a plan as they fight against the 2012 “net worth sweep” imposed by the government.

© 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.