Distressed debt higher as Fed raises rates; oil, gas names mostly better despite crude’s drop

By Stephanie N. Rotondo

Seattle, Dec. 16 – Distressed debt was gaining ground Wednesday, both before and after the Federal Reserve’s decision on interest rates.

“Everything rebounded pretty good today,” a trader said. “And then again after the Fed.”

For the first time since 2006, the central bank upped rates by 0.25%. Rates had been at or near zero since 2008.

And while the increase was largely anticipated – and taken positively – it does raise concerns for some distressed entities.

In a report released after the Fed’s statement, Moody’s Investors Service said that weaker companies – particularly in the oil and gas and services spaces – could see their credit risk elevated if access to the capital markets wanes amid increasing risk aversion.

“Investors will become more risk-averse as interest rates rise,” said Bill Wolfe, senior vice president, in the Moody’s report. “Credit spreads began widening in anticipation of the interest rate hike, but this will continue to mostly affect the weakest companies in the weakest sectors, which will be the most vulnerable as market sentiment becomes more cautious.”

In regards to the oil and gas arena, bonds were trending higher with the market even as domestic crude prices declined.

West Texas Intermediate crude dropped 4.44% to $35.69 a barrel on Wednesday. The drop came as the U.S. Energy Information Administration reported that U.S. stockpiles increased by 4.8 million barrels last week.

Analysts polled by The Wall Street Journal had forecast a draw of 1.4 million barrels.

Also, Congress voted late Tuesday to lift a 40-year export ban on oil. The deal was part of a broader spending and tax bill.

WPX Energy Inc.’s 6% notes due 2022 inched up a touch to 75, a trader said. EP Energy Corp.’s 9 3/8% notes due 2020 improved a like amount to 71.

Comstock Resources Inc. meantime saw its 9½% notes due 2020 gaining half a point to close at 17¾. W&T Offshore Inc.’s 8½% notes due 2019 moved up three-quarters of a point to 35¾.

Still, there remained spots of weakness in the sector.

A trader said Oasis Petroleum Corp.’s 6 7/8% notes due 2022 weakened by 4 points to 70.

Meanwhile, Chesapeake Energy Corp.’s 6½% notes due 2017 lost 4½ points, ending at 51¼.

While the trader said Oasis’ declines was “probably just on oil,” Chesapeake’s losses came as the company said $2.8 billion of 10 series of notes had been tendered as of an early tender deadline of 5p.m., Dec. 15.

In response to the high rate of participation, the company said it was extending the early deadline to 5 p.m., Dec. 18. It also increased the amount of notes it will issue in return for the tendered debt to $3 billion from $1.5 billion.

Steel up, coal down

Among other commodities, the results were mixed on the day as steel names continued to rally and coal producers struggled a little more.

A trader saw AK Steel Holdings Corp.’s 7 5/8% notes due 2020 adding a deuce to close at 40¼. Another market source placed the issue at 39¼ bid, up 3 points.

In coal names, a trader said Peabody Energy Corp.’s 6% notes due 2018 dipped over a point to 17, while Consol Energy Inc.’s 5 7/8% notes due 2022 fell half a point to 63.

A second source, however, called Consol’s 8% notes due 2023 up over a point at 68¼ bid.

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