Distressed market quiet on holiday, Fed meeting; steel producers fall; oil, gas debt retreats

By Stephanie N. Rotondo

Phoenix, Sept. 14 – Investors were preoccupied by recent deals in the high-yield bond market on Monday, leaving little room for activity in distressed debt.

Most of the day’s secondary activity centered on Frontier Communications Corp.’s $6.6 billion three-tranche deal from Friday.

“The activity was dominated by Frontier,” one trader said.

Away from new and recent deals, the steel sector remained under pressure as the space awaits a ruling on potential import duties from the U.S. International Trade Commission.

The energy arena was also trending toward the softer side on Monday, as domestic crude oil prices declined by 1.19%.

Overall, there was a weaker tone to the marketplace. A slightly soft equity market and Rosh Hashanah were partly to blame, a market source reported.

Additionally, investors were keeping an eye toward the Federal Reserve’s policy meeting later this week. Speculation has been that the two-day meeting – which begins on Wednesday – will result in the first interest rate increase since 2008. However, with the recently volatility in the markets, chatter has grown that the raise could be put off or could be less than expected.

Steel sector troubles

U.S. steel producers continued to wane Monday, following news from last week regarding the International Trade Commission’s investigation of cheaper imports.

“There was more cold water dumped on steel,” a trader said, seeing AK Steel Corp.’s 7 5/8% notes due 2021 offered at 61, which was deemed “probably a little lower.”

Among higher-quality steel names, United States Steel Corp.’s 7% notes due 2018, however, held steady at par ½.

And, Steel Dynamics Inc.’s 5¼% notes due 2023 slipped over half a point to 97.

The trader noted that the issue “hadn’t traded in a couple of weeks.”

The ITC issued a report on Thursday in which the trade group said that it was looking into imports of cheaper cold-rolled flat steel from at least seven different countries, including China and the United Kingdom. The group it expected to rule in the coming weeks on whether or not to impose duties on such imports in an effort to help domestic steelmakers amid a decline in the price of the commodity.

Oil bonds dip

Oil prices were soft as the week began and the oil and gas space traded in line with those moves.

A trader said there was “fairly heavy volume” in Chesapeake Energy Corp.’s 4 7/8% notes due 2022, which slipped over half a point to 74 3/8.

Oasis Petroleum Inc.’s 6 7/8% notes due 2023 then closed just a touch lower at 84¾.

Among weaker credits, Gulfmark Offshore Inc.’s 6 3/8% notes due 2022 managed to gain ground, closing up half a point at 62¾.

However, Comstock Resources Inc.’s 7¾% notes due 2019 fell half a point to 30¼, as the 9½% notes due 2020 dropped nearly 2 points to 32.

Chaparral Energy Inc. was also lower, with its 8¼% notes due 2021 falling nearly a point to 45½.

Warren pulls support of GSE bill

A market source said there was “a lot of activity in certain GSE preferreds” as it was being reported that Sen. Elizabeth Warren (D-Mass.) had pulled her support for a Republican-sponsored reform bill that would have prevented the Treasury Department from selling its preferred stock holdings in Fannie Mae and Freddie Mac.

The news was “viewed as negative,” the source said, and the GSE preferreds finished the day weaker as a result.

The 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 11 cents, or 2.24%, to $4.80. The variable rate series O noncumulative preferreds (OTCBB: FNMFN) dropped 44 cents, or 4.84%, to $8.65.

Warren had previously endorsed the bill, but changed her mind after language was revised to all guarantee fees to be used for government spending. She was reportedly concerned that allowing such could result in those fees being handed down to low-income borrowers, should the fees increase.

The bill, which was introduced by Sen. Bob Corker (R-Tenn.), had been on the fast track in Senate, but without Warren’s support it is now in a holding pattern yet again.

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