Intelsat bonds remain in retreat post-earnings, adviser news; oil names weaken; Fannie trades off

By Stephanie N. Rotondo

Settle, Feb. 23 – Intelsat SA bonds continued to be in focus in the distressed debt market on Tuesday, just one day after the company said it had hired advisers to look into improving its balance sheet.

The Luxembourg-based satellite services provider made the announcement on Monday in tandem with releasing its latest earnings. The news sent the company’s debt down 8 to 10 points on the day. The debt dropped at least that much in Tuesday trading, though some issues declined as much as 12 to 14 points.

“That’s a bad situation, “a trader said. “This is worse than any oil and gas [credit] ever was.”

As for oil and gas names, weakness was seeping back in as oil prices retreated over 4.5% on the day. The commodity’s decline came as Saudi Arabia’s oil minister, Ali Al-Naimi, told attendees of the IHS CERAweek conference in Houston that production cuts were not on the table. Furthermore, Al-Naimi said proposals to freeze production would only be implemented if more producers agreed to the plan.

With oil’s dive, Chesapeake Energy Corp.’s 6½% notes due 2017 dipped a quarter-point to 37¾, a trader said. Oasis Petroleum Inc.’s 6½% notes due 2022 meantime lost half a point to close at 52½.

Energy XXI Ltd.’s 8¼% notes due 2018 had a big percentage move, falling half a point to 3 5/8, a trader said.

“That’s still a big move,” he said.

In the realm of oil and gas services, Hornbeck Offshore Services Inc.’s 5 7/8% notes due 2020 were seen declining 9 points from levels seen mid-last week to finish Tuesday at 43. Navios Maritime Holdings Inc.’s 7 3/8% notes due 2022 dropped almost a point to 34½.

Intelsat crumbles

A trader said Tuesday trading was dominated by Intelsat yet again, with “heavy volume” seen in the company’s various bonds.

The 5½% notes due 2023 weakened 5 points to 60½, the trader said, while the 7¼% notes due 2020 fell 8½ points to 65. The 7¼% notes due 2019 declined nearly 11 points to 67¾ and the 7¼% notes due 2021 lost almost 10 points, ending at 63.

The 6 5/8% notes due 2022, however, took the biggest hit, falling 14 points to 43.

“Intelsat got clobbered again today,” a second trader said, referring to Monday’s 8- to 10-point loss in the bonds.

The trader saw the 6 5/8% notes dropping “about a dozen points” to a 43 to 44 context.

Still, that was up from the lows around 42, he said.

The 2019 paper was also slightly better from the intraday low around 66, closing in a 67 to 68 zip code.

The 7¾% notes due 2021 meantime ended around 24, which compared to levels around 28 on Monday.

On Monday, Intelsat posted quarterly net income of $49.1 million, or 42 cents per share. On an adjusted basis, EPS was 55 cents.

Revenue for the quarter came to $571.3 million.

Analysts had forecast adjusted EPS of 31 cents per share on revenue of $571.5 million.

For the year, Intelsat reported a profit of $242 million, or $2.06 per share. Revenue was $2.35 billion, down 2.4% year over year.

Adjusted EBITDA was 79 cents, about in line with the previous year.

Looking ahead, Intelsat is projecting full-year revenue between $2.14 billion and $2.2 billion.

In addition to releasing its results, the company also announced that it had hired Guggenheim Securities to look into ways to shore up its balance sheet. The company was not specific on what possibilities it was considering, but did note that the hiring of the adviser was not a precursor to bankruptcy.

As of Dec. 31, Intelsat had debt of $14.6 billion. The company maintained that its liquidity buffer was sufficient, given that it has an untapped revolving credit facility.

On the heels of the news, Standard & Poor’s placed Intelsat on CreditWatch with negative implications, citing the lower-than-expected revenue forecast for 2016.

Fannie trades active, lower

Fannie Mae preferreds were trading actively Tuesday, though there was no fresh news to act as a catalyst.

The GSE did report earnings on Friday, however.

The 6.75% series Q noncumulative preferreds (OTCBB: FNMAI) slipped a penny to $2.50. Over 5 million of the preferreds traded during the session, making the non-paying security the most active of the day, paying or not.

The 8.25% series S fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FNMAS) were also busy, with over 3 million shares being exchanged. That issue traded off 4 cents, or 1.33%, to $2.97.

Sector peer Freddie Mac saw its 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) traded down in lockstep with the latter Fannie issue, though overall volume was significantly less at about 426,000 shares trading.

On Friday, Fannie posted net income of $2.5 billion for the fourth quarter, up from $2 billion the year before. For the year, income came to $11 billion, down from $14.2 billion in 2014.

Fannie intends to make a $2.9 billion dividend payment to the Treasury Department, bringing its total returned to taxpayers to $147.6 billion.

The GSE received $116.1 billion in bailout funds in 2008.

Fannie’s earnings came on the heels of Freddie’s own quarterly results, which came out Thursday.

For the fourth quarter, Freddie reported a profit of $2.16 billion, which compared to a profit of $227 million the year before.

The mortgage giant attributed the surge in profit to higher credit performance and better derivative bets.

Freddie plans to pay $1.7 billion of said profits to the Treasury, bringing the total given back to the taxpayer to over $98 billion. The agency received over $71 billion in bailout funding in 2008.

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