Energy names stay in focus amid bankruptcy filings, coupon payments; Fannie, Freddie close weak

By Stephanie N. Rotondo

Seattle, April 15 – The distressed bond market acted like there was “an early close” on Friday, according to one trader.

However, he noted that most of the day’s activity was in higher-quality high-yield issues.

But the distressed energy space continued to get attention, as a week of bankruptcy filings and coupon payment news pushed paper around.

Also helping to move that arena was a nearly 3% dip in domestic crude prices. The commodity – which has been running up recently on hopes OPEC and non-OPEC producers could reach a production freeze deal – came in as more and more players begin to think a deal won’t be reached this weekend in Doha.

Linn Energy LLC bonds were mixed on the day, as the Houston-based oil and gas producer said it made late interest payments on its 7¾% notes due 2021, 6½% notes due 2021 and on Berry Petroleum’s senior notes due 2022.

Linn also said that it was using the 30-day grace period for payments due April 15 on its 8 5/8% notes due 2020 and on May 1 for its 6¼% notes due 2019 and Berry’s 6¾% notes due 2020.

A trader said the 7¾% notes fell a deuce on the day, closing at 9¼. But the 8 5/8% notes ticked up a quarter-point to 11¼.

Meanwhile, Breitburn Energy Partners LP’s 8 5/8% notes due 2020 “bounced a little bit,” a trader said, after losing ground on Thursday. The weakness came as the company said it was deferring about $47 million in interest payments on its outstanding debt.

The trader placed the notes at 7¾, up over half a point.

Breitburn also said Thursday that it was nixing its distribution payments on its preferred units.

The 8.25% series A preferred units (Nasdaq: BBEPP) dipped 19 cents, or 6.13%, to $2.91 in Friday trading.

Among recent bankruptcy filers, Energy XXI Ltd.’s 11% second-lien notes due 2022 pushed up almost a point to 24½. The Houston-based oil and gas company filed for Chapter 11 protections on Thursday in order to implement a restructuring proposal that over 63% of the 11% noteholders have signed on to.

On Wednesday, Peabody Energy Corp., a St. Louis-based coal producer, also filed for bankruptcy. On Friday, a trader said there were bids for all of the bonds.

He saw the 6% notes due 2018 slipping nearly half a point to 8 1/8.

At another desk, however, the 6½% notes due 2020 were seen rising 3½ points to 10½ bid.

Fannie, Freddie retreat

Fannie Mae and Freddie Mac preferreds were in focus in Friday trading, as oral arguments in a shareholder lawsuit against the federal government were slated to begin in the U.S. Court of Appeals.

The GSE-linked securities were “all over the place,” a trader said. “People are probably taking profits in case the oral arguments today do not go their way.”

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) ended down 28 cents, or 6.59%, at $3.97. The preferred were off 34 cents, or 8%, at $3.91 at mid-morning.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) closed 24 cents, or 5.73%, weaker at $3.95. The issue was down 27 cents, or 6.44%, at $3.92 in earlier trading.

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 issues started trading more mixed on Thursday.

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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