Commodities lead distressed bonds higher; iron names firm as prices surge; oil and gas remains strong

By Stephanie N. Rotondo

Seattle, March 7 – The distressed debt market’s commodity-led rally “continued kind of across the board,” a trader said Monday.

“It just feels like everything for the most part is better to buy,” the trader added. “Everything is getting lifted and trading up.”

The trader noted that while the rally was extending beyond commodities, that space was faring the best.

Such was in fact the case for iron ore producers on Monday, as the price of the commodity jumped nearly 19% on the day, a record-breaking one-day gain. There was a theory going around that the jump was linked to an international horticulture exposition in China that is slated to begin at the end of April and last through October. The event will take place in Tangshan, a major steel producing area in China, and authorities are expected to tell producers to slash production in an effort to clear up smoggy skies. Leading up to the event, mills are expected to accelerate production.

“Iron ore rallied, so some of these iron names [improved],” a trader said.

Investors in FMG Resources’ bonds took advantage of the gain, pushing the company’s debt up 4 to 6 points on the day.

One trader saw the 9¾% notes due 2022 pushing up 4 points to 104. He then deemed the 8¼% notes due 2019 and the 6 7/8% notes due 2022 up 5 to 6 points, at “around 99” and 83, respectively.

Another market source pegged the 6 7/8% notes at 83 bid, up 6½ points on the day.

Cliffs Natural Resources Inc., another iron producer, also benefitted from the rally, with a trader calling the 8¼% notes due 2020 up 4 points at 82.

The 3.95% notes due 2018 traded “as high as 40,” up 5 points, the trader said.

With iron’s gain, steel names were also on the rise.

A trader said AK Steel Holding Corp.’s 7 5/8% notes due 2021 inched up a point to 56¼. Another source saw the 7 5/8% notes due 2020 at 64½ bid, up 1½ points.

Elsewhere in the metal mining arena, First Quantum Minerals Ltd.’s 6¾% notes due 2020 were seen adding “another 3 points” to close at 66½.

Freeport-McMoRan Inc. debt, however, was bucking the sector’s upward trend.

A trader said the 3 7/8% notes due 2023 fell almost 3 points to 72½, as the 3.55% notes due 2022 dipped a deuce to 74¼. The 4.55% notes due 2024 slipped nearly a point to 73¼.

Oil’s ‘leaps and bounds’

The oil and gas sector was another area that remained strong in Monday trading.

“Some of this oil and gas stuff is just leaping in leaps and bounds,” a trader said.

He saw Whiting Petroleum Corp.’s 6¼% notes due 2023 jumping 5½ points to 62½. EP Energy Inc.’s 9 3/8% notes due 2020 were seen up 3 points at 40½, while Chesapeake Energy Corp.’s 6 5/8% notes due 2020 rose “about a point” to 34½.

A second trader saw Chesapeake’s 8% second-lien notes due 2022 closing around 54, up from a 52 to 52½ context on Friday.

Among distressed preferred stock issues, Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) veered off course, trading down in the wake of Friday’s announcement of a suspended dividend.

Come Monday, those units took a hefty hit, even as oil prices rallied.

The units fell $2.07, or 36.19%, to $3.65.

By comparison, sector peer Legacy Reserves LP’s 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) rose 68 cents, or 33.33%, to $2.72.

Legacy made a similar announcement on Jan. 21.

For its part, Vanguard intends to use the cash it will save to pay down its revolving credit facility.

Domestic crude oil meantime flourished in trading, rising over 5% to $37.85 a barrel. The commodity has been steadily gaining since Russia and OPEC proposed a production freeze. Hopes that such a deal could actually be reached were increased Monday, as Ecuador announced that it was hosting a meeting of Latin American oil producers “to reach consensus over oil, especially prices.”

© 2015 Prospect News.
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