Distressed bonds remain weak as Fed maintains rates; oil in retreat; Intelsat debt loses altitude

By Stephanie N. Rotondo

Seattle, June 15 – While the broader high-yield bond market gained momentum on Wednesday, the distressed debt space continued to be under pressure.

That being said, a trader opined that the weakness was amid muted activity.

“I still think volumes are pretty limited,” he added.

Market players were waiting to see if the Federal Reserve would raise interest rates at its latest policy meeting. In its midday announcement, the central bank said it was keeping interest rates steady for the time being, citing anemic job growth and concerns about the United Kingdom’s upcoming vote to possibly leave the European Union.

While it remains to be seen whether the Fed will raise rates in July or leave it until September, it did appear that more members were leaning towards just one hike this year, instead of the two previously forecast.

As for the day’s dealings, oil and gas debt was pressured yet again on Wednesday, as domestic crude prices retreated over 2% to end at $47.47 a barrel – a three-week low.

Weakness in the commodity was due to a smaller-than-expected drawdown from U.S. stockpiles and increased inventories at the Cushing, Okla.-based delivery point. The market is now wondering if Canadian production levels are approaching pre-wildfire levels sooner than expected and how increased U.S. drilling activity will impact overall supply.

Among oil and gas names, a trader said California Resources Corp.’s 8% second-lien notes due 2022 were “a good benchmark,” seeing the paper falling to a 68 handle from previous levels “close to 70.”

Intelsat weakens

Oil and gas names weren’t the only ones bucking the day’s upward trend.

A trader said Intelsat SA bonds were “getting beat up” in midweek trading.

However, he said he wasn’t sure why the debt was weaker, nor had he heard any fresh news about the company’s tender offer for Intelsat Jackson Holdings SA paper.

He said the “luxco” bonds – such as the 7¾% notes due 2021 – were “down another point and change” at 25. He noted that the bonds traded as low as 24½.

As for the Jackson unit’s debt, the 7½% notes due 2021 ended at 65½, he said.

At another desk, a market source pegged Intelsat Jackson’s 6 5/8% notes due 2022 at 67 bid, off over a point on the day.

In early May, Intelsat said it had launched a cash tender for up to $625 million of three series of Intelsat Jackson bonds maturing 2021 through 2023. On May 18, the company reduced the amount of cash offered per each $1,000 of notes and extended the deadline to June 9. That was later pushed to June 14 and then again to June 22.

The company also said that it would pay the early tender premium on all notes tendered.

Intelsat is a Luxembourg-based commercial satellite services provider.

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