Energy XXI enters bankruptcy; second-lien debt gains; Breitburn Energy misses coupon

By Stephanie N. Rotondo

Seattle, April 14 – The distressed debt market – specifically the energy arena – was hit with another round of negative headlines on Thursday.

Energy XXI Ltd. announced that it had filed for bankruptcy protections early in the day. The company did so in order to implement a restructuring plan that has garnered the approval of about 63% of the company’s 11% second-lien noteholders.

As the latest casualty of a depressed commodity price environment, Energy XXI’s filing brings the total amount of defaulted debt in April to $14 billion, according to Fitch Ratings.

Still, the company’s bonds improved on the news.

Not so improved was Breitburn Energy Partners LP’s debt. The MLP said on Thursday that it was deferring the interest payments on its 7 7/8% notes due 2022 and the 8 5/8% notes due 2020 and was also cutting distributions on its preferred units.

Away from energy names, Fannie Mae and Freddie Mac preferreds continued to be actively traded on Thursday ahead of oral arguments in court on Friday. But while the preferreds had been trending higher, Thursday’s session saw the GSE-linked securities “looking a little more mixed,” a market source said.

Energy XXI files

Energy XXI’s 11% second-lien notes due 2020 popped Thursday after the Houston-based oil and gas explorer said it had filed for Chapter 11 protections.

A source placed the issue in a 24¼ to 24½ ZIP code, up from previous levels around 16.

Under the company’s proposed restructuring plan, the second-lien noteholders will receive 100% of the new equity in the company. Unsecured and convertible noteholders will get 10-year warrants for up to 10% of new equity.

The plan is expected to trim $2.8 billion of the company’s stated $3.6 billion debt load.

The company is working with first-lien lenders to work out a deal, and those debtors have not yet signed on to support the plan.

Breitburn tanks

Breitburn Energy Partners’ 8¼% series A preferred units took a massive hit on Thursday after the company said it was suspending distributions.

The paper dropped $2.20, or 41.51%, to $3.10. The decline made the issue the biggest percentage loser of the day.

Additionally, the Los Angeles-based MLP said it was deferring about $47 million in interest payments on its outstanding debt. That sent the 7 7/8% notes due 2022 and the 8 5/8% notes due 2020 down to levels around 5.

The bonds had traded as high as a 7 to 7¼ context during the session before settling back in.

The company now enters a 30-day grace period before a default occurs.

Fannie, Freddie in motion

Fannie Mae and Freddie Mac preferreds remained on the radar on Thursday as investors wait to hear what happens during oral arguments in court on Friday.

Fannie’s 8¼% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) – which had been trending higher for most of the week – drifted down 4 cents to $4.25. But the 6¾% series Q noncumulative preferreds (OTCBB: FNMAI) were one of the day’s biggest percentage gainer’s, rising 59 cents, or 18.73%, to $3.74.

In Freddie paper, the 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) meantime ended off 7 cents, or 1.64%, at $4.19.

On Tuesday, the preferreds got a pop as the market digested a slew of new unsealed documents related to a court case stemming from the government’s 2012 decision to commandeer a majority of the GSEs’ profits. The gains continued into Wednesday, and the mortgage giants were dominating overall trading.

The documents, which were unsealed by judge Margaret Sweeney, appear to hold up the plaintiffs’ allegations that the government knew the agencies were returning to profitability before it made its decision to sweep profits. The sweep was predicated on the notion that the government needed to protect taxpayers in case of a need for another bailout.

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