Distressed oil and gas bonds improve as crude gyrates; AK Steel bonds continue to firm; Calumet up

By Stephanie N. Rotondo

Seattle, April 20 – The distressed energy space remained in focus on Wednesday as domestic crude oil prices gyrated.

Oil was initially lower on Wednesday, as investors grew concerned about inventory builds and production.

But after the U.S. Energy Information Administration reported that crude inventories increased less than the amount projected by the American Petroleum Institute and that domestic production had fallen for the sixth consecutive week, oil prices rallied.

The volatility in the commodity resulted in gyrations for oil and gas-linked securities, which ultimately ended mostly higher for the day.

“All as oil firmed on the day,” a trader said.

WPX Energy Inc.’s 6% notes due 2022 inched up a point to 88, the trader said.

Denbury Resources Inc. paper was also better. A trader said the 4 5/8% notes due 2023 rose 1½ points to 53½, as another market source deemed the 6 3/8% notes due 2021 nearly 2 points higher at 59½ bid.

In EP Energy Corp. debt, the 9 3/8% notes due 2020 were seen up over a point at 62.

In energy-linked preferreds, Legacy Reserves LP’s 8% series A fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYP) ended the day up 15 cents, or 3.31%, at $4.06. The units were down 15 cents, or 3.82%, at $3.78 in early trades.

The 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) meantime rose 23 cents, or 5.87%, to $4.15.

That issue was among the day’s top percentage gainers.

However, Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) failed to benefit from the intraday rally. The units closed down 14 cents, or 5.49%, at $2.41. The day’s losses placed the issue among the day’s biggest percentage losers.

Domestic crude was off 1.77% at mid-morning, even as an oil worker strike in Kuwait came to an end. The nation already had tanker ships lining up to cart away its goods and production was increased to 1.6 million barrels a day from 1.1 million barrels pumped on Sunday.

The early weakness was also attributed to the API report released on Tuesday, which showed a larger-than-expected build of 3.1 million barrels for the week. Investors were therefore concerned as to what the Energy Information Administration’s data – set to be released Wednesday morning – would show.

The EIA report brought better news, which eventually led domestic oil prices up 3.18%, nearing the $44-mark. In its report, the EIA said crude inventories increased by 2.1 million barrels last week.

That was still above the 1.6 million barrel gain projected by analysts.

But the report also showed that U.S. production had decreased by 24,000 barrels a day and that distillate stockpiles had fallen 3.6 million barrels week over week.

AK remains strong

AK Steel Holdings Corp.’s bonds meantime continued to improve following news of price increases over the last week.

One trader said the 7 5/8% notes due 2020 were “pretty active” at 85½, which he called up a point. A second source called the issue up a deuce at 85¾.

The West Chester, Ohio-based steelmaker announced late last week that it was increasing the current spot prices for all carbon flat-rolled steel by a minimum of $50 per ton, effective immediately on new orders.

On Monday, AK said it was also increasing base prices for stainless steel products. For commodity sheet and strip, specialty sheet and strip, and pipe and tube sheet and strip products, the increase will come via a reduction in the functional discount of 2%. For all remaining stainless steel products, including automotive sheet and strip, prices will increase by $40 per ton.

The stainless steel increases will go into effect May 1.

Calumet’s modest rebound

After getting hit hard earlier in the week, Calumet Specialty Products Partners LP’s bonds saw a slight improvement in midweek trading.

A trader said the 6½% notes due 2021 ticked up a quarter-point to 69¾.

On Monday, the bonds plummeted 12 to 14 points after the Indianapolis-based company said it was nixing its stock dividend and that it had incurred more debt via a $400 million private placement of 11½% senior secured notes due 2021. Proceeds will be used to bolster the bottom line.

Calumet also said it expects to post a quarterly loss of $59 million to $83 million on May 5. Year over year, it is forecasting that liquidity will fall to $7.4 million from $272.8 million.

With the new debt offering, Calumet has debt of over $2 billion.

On Monday, both Standard & Poor’s and Moody’s Investors Service downgraded the company. S&P cut the corporate credit rating to B- from B. Moody’s dropped its corporate family rating to Caa1 from B2.

Bankrupt movers

As for credits already in bankruptcy, a trader said Peabody Energy Corp.’s 6% notes due 2018 fell almost a point to 11¼.

Sector peer Arch Coal Inc. went the opposite direction, as the 7¼% notes due 2021 edged up a quarter-point to 1.

Seventy Seven Energy Inc. – which said Tuesday it intended to file, though it has yet to do so – also saw its 6 5/8% notes due 2019 rising almost 2½ points to 36 3/8.

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