Distressed bonds move back up; Ocean Rig heads down after numbers; Bombardier debt ticks up

By Stephanie N. Rotondo

Seattle, May 20 – It was a better day for the distressed debt market, after falling for the previous two sessions on concerns about a possible interest rate hike in June or July.

But while the day had a firmer tone, overall activity was subdued, aside from a handful of names.

“There’s not much to report,” one trader said.

Ocean Rig UDW Inc. was one name that got some attention. The Cyprus-based drillship operator posted earnings just before the bell on Thursday. Come Friday, the bonds were trading actively, but unchanged to lower – even though the results beat expectations.

Meanwhile, Bombardier Inc. was also on the busier side – trending unchanged to slightly better – after the Canadian Prime Minister said aid talks to the struggling aerospace company would continue.

As for the commodity space, a trader said Peabody Energy Corp. was “somewhat active,” seeing the unsecured debt trading “a touch better” at 11½.

Another trader also deemed the unsecureds better, with both the 6% notes due 2018 and 2020 inching up to 11½.

In the oil arena, a trader said California Resources Corp.’s 8% second-lien notes due 2022 were “up a bunch,” trading into the mid-60s.

He called that up “about 4 to 5 points.”

Ocean Rig off post-earnings

A trader said Ocean Rig’s 6½% notes due 2017 traded off Friday, just one day after the company released quarterly results that beat expectations.

He saw the paper closing around 58¼, which he said was off 4 points. However, he noted that the debt hadn’t traded in a couple of weeks.

Another trader placed the issue in a 58 to 58½ context, “probably unchanged.

“The last real trading earlier in the month was in the low-60s,” the trader said.

For its first quarter, Ocean Rig reported a profit of $287.2 million, or $2.07 per share. On an adjusted basis, EPS was $1.17.

Revenue was $508 million.

Analysts surveyed by Zacks Investment Research had predicted EPS of 67 cents on revenue of $439.5 million.

Bombardier maintains

Bombardier bonds were unchanged to slightly better on Friday, as the market digested comments made by Justin Trudeau, the Canadian prime minister, on Thursday.

The comments were in regards to the Ottawan government’s ongoing discussions with the company about matching the Quebec government’s $1 billion stake in its CSeries jet program.

One trader said the 5¾% notes due 2022 were “pretty much unchanged” at 85¼, though another source deemed the 7¾% notes due 2020 up a shade at 98 bid.

There has been speculation that talks with Ottawan officials have gone sour. Trudeau, in an interview with Reuters, tried to clear up the buzz.

“I am currently engaged with Bombardier on the best way we can ensure a strong and vibrant future for aerospace in Canada,” he said. He noted that the talks were important in helping to maintain and create more jobs in the country.

“We're always open to looking at ways of strengthening and creating better jobs,” he said.

Fannie, Freddie push higher

While recently priced deals did get their fair share of attention, trading Fannie Mae and Freddie Mac clearly dominated the session.

The GSEs’ preferreds were on the rise during the day, as more court documents in a case challenging the government’s “net worth sweep” of the agencies’ profits were unsealed.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 27 cents, or 7.05%, at $4.10, with over 3 million shares trading. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were also better by 27 cents, or 7.22%, at $4.01.

Over 1.6 million of those preferreds were exchanged.

The documents appeared to show that the White House was more involved with the Treasury Department’s August 2012 decision to take a bulk of the profits earned by Fannie and Freddie while they operated under conservatorship than previously stated. One email, written by a top housing official in the Obama Administration, went so far as to say that the alteration in the 2008 conservatorship plan would ensure that the mortgage giants would not be able to “repay their debt and escape as it were,” according to a report published by The New York Times.

Said email allegedly came not long after a meeting in July 2012 with the Federal Housing Finance Agency, the regulator overseeing the two agencies. In that meeting, the regulator reportedly told officials that Fannie and Freddie were about to enter the “golden years” in terms of profits.

Stakeholders of Fannie and Freddie have taken the government to court challenging the sweep, deeming it illegal under the conservatorship. They have also argued that the government has set up Fannie and Freddie to fail again, as they are not able to build up any capital cushion to fall back on in the event of another financial crisis.

To date, Fannie and Freddie have paid back over $50 billion more than the combined $187.5 billion bailout received in the financial crisis. However, the principal amount of what it owes remains outstanding, as all of those payments have been deemed dividend payments on the Treasury’s holdings.

© 2015 Prospect News.
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