Distressed bonds weaker again; Peabody losing ground, Arch ticks up; Fannie, Freddie under pressure

By Stephanie N. Rotondo

Seattle, Sept. 13 – It was another mostly weak day for distressed bonds on Tuesday.

However, a trader noted that the focus remained on the flow of new high-yield issues entering the market.

In distressed dealings, Peabody Energy Corp. bonds were trading lower, even as sector peer Arch Coal Inc. was “up big,” according to one trader.

Peabody’s 6% notes due 2018 fell over 2 points to 21¾, a trader said. The 6¼% notes due 2021 dipped 1½ points to 22¾.

As for Arch, its 7¼% notes due 2021 rose nearly 1½ points to 4¾ – a sizeable move on a percentage basis.

The gains in Arch came as a bankruptcy court approved the company’s reorganization plan.

Meanwhile, Intelsat SA paper remained under pressure. A trader said the 5½% notes due 2023 dipped a quarter-point to 68.

Intelsat said Tuesday that it had received 99.74% of its outstanding 6 5/8% notes due 2022 by the early tender date. Holders will receive new 8% senior secured notes due 2024 plus a cash payment.

More pain for Fannie, Freddie

Fannie Mae and Freddie Mac preferreds continued to lose ground on Tuesday. The securities have been weaker in recent days, but have been punished by Friday’s news that a U.S. District Court judge dismissed a shareholder lawsuit brought in regards to the government’s net worth sweep.

The preferreds were down 3% to 6% at mid-morning – and it only got worse from there.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) dropped 13 cents, or 4.11%, to close at $3.03, while the 6.55% noncumulative preferreds (OTCBB: FMCKI) declined 33 cents, or 12.69%, to $2.27.

In Fannie paper, the 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) fell 25 cents, or 7.35%, to $3.15, as the variable rate series O noncumulative preferreds (OTCBB: FNMFN) lost 60 cents, or 10.71%, to end at $5.00.

Each of those issues traded over 1 million times during Tuesday’s session.

One trader remarked that there was a story circulating that a highly-anticipated ruling from the Court of Appeals was expected by mid-October. So far, the various shareholder lawsuits brought against the government in relation to its net worth sweep have gone mostly in favor of the government – including a dismissal of one such case on Friday, in which U.S. District Court Judge Katherine Caldwell ruled that the Federal Housing Finance Agency, as conservator, does not have any fiduciary duty to shareholders.

Viking storms the market

Viking Cruise debt again bucked the day’s trend after the market learned the company had received a $500 million equity infusion.

“They all popped late yesterday and were up again today,” a trader said.

He called the 8¼% notes due 2022 rising “another 6 points” to 101½, while the 6¼% notes due 2025 popped “another 7½ points,” closing at 92.

Late Monday, it was announced that TPG Capital and Canada Pension Plan Investment Board had each ponied up $250 million for MISA Investments Ltd, the parent company of Viking Cruise.

The infusion equates to a 17% stake in the company.

Proceeds will be used to accelerate the cruise line’s growth initiatives and to strengthen the balance sheet.

The new financing comes on the heels of an accident that occurred on Monday in Germany. One of Viking’s river cruise ships hit a bridge, and two crewmembers were killed.

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