Distressed energy bonds trend lower despite gain in crude prices; Fannie, Freddie remain weak

By Stephanie N. Rotondo

Phoenix, Aug. 18 – The distressed energy sector continued to be mostly weaker on Tuesday, despite an uptick in crude oil prices.

Benchmark crude rose over 1% ahead of new inventory data from the American Petroleum Institute. The gains were attributed to hopes inventories went down.

The API report came after the close and showed a 2.3 million barrel drawdown last week – much higher than the 800,000 barrel decline forecast by analysts polled by Reuters.

The report comes ahead of the U.S. Energy Administration’s own report, due Wednesday.

Despite the gains, distressed oil names continued to see softness.

SandRidge Energy Inc. – which had previously been moving up following news of a debt exchange and repurchase – came in a bit on Tuesday.

A trader said the 8¾% notes due 2020 fell a point to 66¼. Another market source pegged the 7½% notes due 2021 at 29¼ bid, also off a point.

On Friday, the Oklahoma City-based oil and gas producer said it was repurchasing and exchanging $525 million of four series of notes, including the 8¾% and 7½% notes.

Another oil name declining on the day was Oasis Petroleum Inc., according to a trader. He saw the 6 7/8% notes due 2022 at 86¼, off half a point.

In the coal space, Consol Energy Inc. was also down, with a trader seeing the 5 7/8% notes due 2021 slipping almost a point to 72¼.

Another source placed the 8% notes due 2023 at 77½ bid, down almost a point.

There were some names that saw upside in the energy arena, however.

Linn Energy LLC was one such name, as a trader saw the 8 5/8% notes due 2020 rising over 1½ points to 51.

At another desk, Linn’s 7¾% notes due 2021 were seen up half a point at 47½.

Fannie, Freddie weak again

A market source said that GSE preferreds were “heavily traded” again on Tuesday amid “fear of that story.”

The story to which he was referring was in regards to reports that Claren Road Asset Management, Carlyle Group LP’s hedge fund, was facing nearly $2 billion in withdrawals at the end of the quarter.

Bloomberg reported Monday that investors were looking to take out about 48% of the funds assets this year as losses mount up. The withdrawals began to kick up last year when the fund reported its first yearly loss due to weak returns from Fannie Mae and Freddie Mac.

As Claren Road has previously been big fans of Fannie and Freddie preferreds, the shares have been under pressure since the story printed.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) fell 23 cents, or 4.84%, to $4.52. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) declined 15 cents, or 3.19%, to $4.55.

On a percentage basis, Claren Road’s main fund lost 7.2% in value since the beginning of 2015, according to the Bloomberg piece. The fund rose 1.7% in the first two weeks of August.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.