Alpha Natural bonds continue to decline; OGX notes slip as Batista swaps royalties for shares

By Stephanie N. Rotondo

Phoenix, Aug. 6 - Distressed bonds were holding in Tuesday, as a trader said, "Everything is virtually unchanged."

Alpha Natural Resources Inc. continued to see a selloff, traders reported. The bonds dropped 2 to 3 points on the day in the wake of earnings last week.

Late Monday, Moody's Investors Service placed the company on review for a potential downgrade.

Meanwhile, OGX Petroleo & Gas Participacoes SA was a smidge weaker as it was reported that majority owner Eike Batista had granted lenders a collateral swap, giving them port royalties instead of OGX stock.

It was also reported that Brazil's National Petroelum Agency was putting the final touches on an economic viability study of the Tubarao Azul field. The agency is looking into the area as OGX has said it would halt output from the field next year.

Elsewhere in distressed, a trader said Exide Technologies Inc.'s 8 5/8% notes due 2018 were up half a point to 631/2.

However, another trader said Clear Channel Communications Inc.'s 9% notes due 2019 were down that much, trading around 97.

Alpha Natural remains weak

A trader called Alpha Natural's 6% notes due 2019 "down just under 2 points" at 831/2.

Another market source saw the 6¼% notes due 2021 trading off over 2 points to 80¾ bid.

A third trader said the bonds were "down 2 to 3 points," pegging the 6¼% notes at 801/2.

On Friday, the Bristol, Va.-based coal producer reported a narrower quarterly loss. But the climate for coal has not been good of late, especially as global lenders have cut back the amount of support given to overseas coal projects.

Late Monday, Moody's placed Alpha Natural on review for a possible downgrade. The ratings firm currently has a B1 rating on the company.

For the quarter, Alpha Natural reported a loss of $185.7 million, or 84 cents per share. That compared to a loss of $2.23 billion, or $10.14 per share, the year before.

The previous year's loss was based on a writedown of assets and a restructuring charge.

Profit margin was weaker at $2.72 per ton, versus $6.57 per ton in the same quarter of 2011. Revenues dropped nearly 28% to $1.34 billion, as sales dropped 19% to 21.6 million tons of coal.

Analysts polled by FactSet were expecting a loss of 34 cents per share on revenues of $1.85 billion.

The company blamed the poor quarter on falling demand for coal, as well as lower prices. Additionally, Alpha Natural ran into production issues at its Cumberland and Emerald mines.

OGX bonds slip

OGX's 8½% notes due 2018 slipped half a point to 201/2, according to a trader.

Another trader saw the paper trading in a 20½ to 21 context, "basically unchanged, maybe a little weaker."

The move came as news outlets reported that owner Eike Batista had swapped port royalties for OGX stock as collateral for two lenders, Banco Bradesco SA and Itau Unibanco Holding SA.

OGX's stock has plummeted 87% so far this year.

Also, Brazil's ANP is expected to release the results of an economic viability study of the Tubarao Azul field in the next week. OGX has said that because of the make up of the landscape, it costs too much to drill there and, as such, it will halt production there next year.

If the study concurs with OGX's claims, OGX could return the field back to the ANP.

Obama talks Fannie, Freddie

Fannie Mae and Freddie Mac preferreds took a hit Tuesday as President Obama gave a housing speech in Phoenix in which he proposed eventually privatizing the two mortgage giants.

Fannie's 8.25% series S fixed-to-floating rate noncumulative preferred stock (OTCBB: FNMAS) dropped 23 cents, or 4.51%, to $4.87. Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) declined by 16 cents, or 3.13%, closing at $4.95.

"For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag," Obama said in his speech, held at a local high school.

The speech marked the first time Obama has voiced his ideas to wind down Fannie and Freddie, though he has often supported the goal. Obama said Tuesday that instead of the government providing a backstop for the two entities, the private sector should be the ones to take the risk. The government's role would be reduced to oversight and as a last-resort loan guarantor.

Obama also said he wanted to make sure the private sector would continue to offer 30-year fixed-rate mortgages.

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