Peabody bonds up as name deemed a value play; oil rallies, boosting sector; FMG, Getty up

By Stephanie N. Rotondo

Phoenix, April 7 – The interest in distressed commodity names continued in Tuesday trading, according to market sources.

Peabody Energy Corp., for one, got a big boost after the company was “mentioned by some hedge fund on CNBC,” a trader said. The bonds ended the day up about 4 points.

Meanwhile, another gain in oil prices added strength to the oil and gas space. Oil prices rose over 3% on Tuesday – which followed an over 5% gain on Monday – as investors reacted positively to a report from the Energy Information Administration indicating that demand was rising and U.S. crude production was slowing.

The commodity was also benefitting from a jobs report that showed a sizable gain in job openings.

However, Standard & Poor’s went on a downgrade rampage during the session. Names like Seventy Seven Energy Inc. and Ocean Rig UDW Inc. saw their ratings cut, but their debt was impacted very little.

Peabody jumps up

Comments made by a hedge fund on CNBC helped push coal producer Peabody upward on Tuesday, according to a trader.

The trader deemed the 10% notes due 2022 – a $1 billion issue that priced in early March – at 89 bid, 90 offered, up 4 points. He also saw the 6¼% notes due 2021 at 61½, which compared to a 57 to 58 area previously.

Another market source pegged the 6½% notes due 2020 at 63 bid, up 3½ points.

In an interview with CNBC, Christian Zann, a partner and portfolio manager at Balyasny Asset Management, deemed Peabody a value play, which in turn helped move the company’s stock (NYSE: BTU) up 29 cents, or 5.74%, to $5.34.

More strength for oil, gas

As oil prices continued to rise Tuesday, so did oil and gas debt.

West Texas Intermediate crude gained $1.62, or 3.11%, to $53.76 per barrel. Brent crude edged up 90 cents, or 1.55%, to $59.02.

Linn Energy LLC’s 7¾% notes due 2021 were among the day’s gainers, putting on a deuce to close at 82½, according to a market source. SandRidge Energy Inc.’s 7½% notes due 2021 meantime closed up half a point higher to 66 bid.

But a downgrade from S&P stopped any rallies for Seventy Seven Energy or Ocean Rig.

S&P cut Seventy Seven to B from B+, citing concerns about the company’s funds from operations to debt ratio should those levels weaken or liquidity deteriorate further. The rating agency also dropped Ocean Rig to B- from B.

However, a trader noted that the Seventy Seven downgrade came late in the day, adding that the paper “wasn’t really trading” ahead of the news.

He said there was a 48 bid for the 6½% notes due 2022 floating around, which compared to a 49 to 50 context on Monday.

Ocean Rig’s 7¼% notes due 2019 meantime held steady at 58, he said.

FMG, Getty improve

Elsewhere in the distressed space, a trader said FMG Resources’ debt ended “better,” seeing the 8¼% notes due 2019 at 83 and the 6 7/8% notes due 2022 at 71.

The trader also saw Getty Images Inc.’s 7% notes due 2020 trading “pretty active” around 51 for most of the day. Late in the day, there was a 53 bid for paper, he remarked.

He said he saw no specific news to act as a catalyst.

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