Distressed energy bonds, preferreds spiral down as oil trades sub-$30; Fannie, Freddie remain weak

By Stephanie N. Rotondo

Seattle, Jan. 15 – As the markets experienced another day of hefty declines, so did the distressed debt market on Friday.

Oil’s downward spiral was pushing energy-linked paper further into the red.

“Oil under $30 spooks people,” a trader said.

Midstates Petroleum Co. Inc.’s 10% notes due 2020 was the sector’s “biggest trader,” according to one market source, with nearly $30 million trading. The paper dropped over 5 points to end at 25¾.

Oasis Petroleum Inc. was another big loser, as a trader saw the 7¼% notes due 2019 falling 6 points to 47¼. The 6 7/8% notes due 2022 were meantime off 3½ points at 45.

Another trader pegged the 2019s at 47, down from 53.

Perhaps the biggest loser for the session, however, was Sanchez Energy Corp., as its 6 1/8% notes due 2023 were seen plummeting 16 points to 30¾.

There was no credit-specific news out to cause such a nosedive.

Williams Co.’s bonds were also weaker on the day. A trader saw the 4.55% notes due 2024 sliding 3 points to 60.

The Tulsa-based energy company and its subsidiaries have seen their ratings cut by Fitch Ratings, Moody’s Investors Service and Standard & Poor’s since the end of December.

In Pacific Exploration & Production Corp. paper, a trader said the 5 1/8% notes due 2023 drifted down nearly 4 points to trade sub-10.

The Toronto-based oil and gas company focused on Latin America said Thursday that it was skipping upcoming interest payments on its 5 3/8% notes due 2019 and 5 5/8% notes due 2025. On Friday, holders of those notes, as well as the 5 1/8% notes due 2023 and 7¼% notes due 2021 said Goodmans LLP had been hired to represent the group as they assess not only the skipped payment, but a tender offer recently put forward by EIG Pacific Holdings Ltd.

Among distressed energy preferreds, Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) were down $1.31, or 22.55%, at $4.50. Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) weakened $1.61, or 36.67%, at $2.78.

Legacy Reserves LP’s (Nasdaq: LGCYO) dropped 99 cents, or 30.46%, to $2.26.

For their part, domestic oil prices were off nearly 5% on Friday, trading sub-$30 a barrel. Along with concerns about China’s growth – China is the second-largest consumer of the commodity – increased worries about a supply glut were also playing a role in the decline, especially as it seemed Iran would start exporting its products sooner rather than later.

Mortgage-linked names dip

As the market drifted down, a trader said “BDCs and mortgage REITs are getting smoked today,” due to the fact that banks have been warning that mortgage units have not fared so well. Names like Resource Capital Corp. have been pressured.

Resource Capital’s 8.625% fixed-to-floating rate series C cumulative redeemable preferreds (NYSE: RSOPC) were off 71 cents, or 4.41%, at $15.40.

Elsewhere in the mortgage realm, Fannie Mae and Freddie Mac preferreds continued to sink.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) lost 2 cents, ending at $2.95. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) dropped a nickel, or 1.67%, to $2.94.

© 2015 Prospect News.
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