Distressed energy paper boosted as crude prices pop; GSE reform push helps Fannie, Freddie preferreds

By Stephanie N. Rotondo

Seattle, June 6 – The distressed debt market was on the rise Monday, led by a booming energy space.

Oil and gas names were meantime being led higher by a sizeable gain in domestic crude oil prices. Crude improved by 2.22% on the day, trading up to $49.70 a barrel.

The commodity’s rise was due to concerns about supply, especially as Nigerian production has fallen by almost 200,000 bpd in the wake of attacks against oil infrastructure.

A trader said there were “a bunch of trades” in Chesapeake Energy Corp.’s 8% second-lien notes due 2022. He deemed the issue up over a point to 83¼.

Another trader said the debt was 3 points better at 83.

Yet another market source pegged the 6 5/8% notes due 2020 at 71½ bid, a gain of over 3 points on the day.

In California Resources Corp. paper, a trader said the 8% second-lien notes due 2022 were up by “1 and change” points at 73½. The 5½% notes due 2021 ticked up a point to 54½, he said.

A second trader saw the 8% notes adding “about a point,” closing around 73.

WPX Energy Inc. was also firming during the session, after the Tulsa-based company upwardly revised its annual production guidance.

The company also said it was launching a $485 million public offering of common stock, the proceeds of which would be used to support general corporate purposes including drilling and completions, bolt-on acreage acquisitions and midstream infrastructure in the Delaware Basin.

A trader saw the 5¼% notes due 2024 moving up almost 2 points to 88.

As for the guidance revision, WPX now expects to produce 39,000 barrels to 41,000 barrels per day, up from previous guidance in a 37,000- to 39,000-barrels range. The improved production schedule was attributed to better-than-expected well performance.

Fannie, Freddie up on reform push

Fannie Mae and Freddie Mac preferreds remained on an upward trajectory on Monday as recent developments in GSE-linked lawsuits have spurred both sides of the Congressional aisle to renew calls for GSE reform.

Nearly 3 million of Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) traded, rising 4 cents to $4.76. Over 1.8 million of Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) changed hands, gaining a nickel, or 1.09%, to $4.65.

In mid-May, a group of 12 organizations – right-center groups, according to one news outlet – wrote a letter urging Congress to pass a reform bill sponsored by Rep. Mick Mulvaney (R, S. C.). Late last week, a group of 32 Democratic members of the U.S. House of Representatives signed a letter to the Federal Housing Finance Agency’s head, Mel Watt, as well as Treasury Secretary Jack Lew. The letter urged both parties to rethink a policy that requires both Fannie and Freddie to reduce their liquidity positions to zero by Jan. 1, 2018.

Creditors of the GSEs have been asking for the same thing, even going so far as to file several lawsuits fighting the government’s 2012 “net worth sweep” decision. Plaintiffs in said lawsuits have argued that in doing so, the mortgage guarantors cannot build up any sort of capital buffer to protect themselves – and taxpayers – in the event of another financial crisis.

In recent weeks, Judge Margaret Sweeney of the Federal Court of Claims has unsealed more documents from the government, each of which appears to give said plaintiffs more leverage in their case.

Odebrecht on the rise

A trader said there was “something going on” with Odebrecht Finance Ltd.’s 5¼% notes due 2029.

The trader placed the issue at 42¼, up 10 points from June 1, he said, and levels around 25 in mid-May.

However, there was no fresh news out to explain the recent surge in the bonds.

Odebrecht Finance is a subsidiary of Odebrecht Engenharia e Construção SA, which is a Rio de Janeiro-based provider of construction and engineering services.

© 2015 Prospect News.
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