Distressed debt market sees low volume in post-holiday session; OGX bonds busy, regain ground

By Stephanie N. Rotondo

Phoenix, July 8 - It was a steady day for distressed bonds on Monday, despite light volumes, traders said.

One trader said the market was "not too bad" in terms of losers, while another said the market was "up, up and away."

"It was pretty darn quiet," said a third trader, deeming the day "typical" of a first Monday back from a holiday weekend.

The third trader commented that Friday's dip in Treasuries didn't impact the distressed space as much as others, though he noted that "some things were lower Friday.

"In limited trading [on Monday], things were pretty much unchanged to maybe a couple bids creeping back in."

OGX Petroleo e Gas SA's 8 1/8% notes due 2018 dominated the trading day, according to one source. He called the issue down slightly at 25 7/8, as investors continue to speculate whether or not the company will restructure and what such an effort might leave for them.

But another trader said the debt "seemed better," seeing the paper in a 25 to 26 context.

"It's crept up from the very low-20s," he noted.

Meanwhile, Overseas Shipholding Group Inc.'s 8 1/8% notes due 2018 "continue to move up," another trader reported. He pegged the issue at 88½ bid, 89 offered.

The trader said he had not seen any news on the bankrupt oil shipping company, but he commented that the Baltic Dry Index had been firming recently.

"Maybe the value of those transport ships is rising," he said. He also noted that the company's stock (OTC Markets: OSGIQ) was trading up near the $5-mark, "which is unusual for a company in bankruptcy."

The stock ended the day up 24 cents, or 5.47%, at $4.63.

After filing for bankruptcy last week, Cengage Learning Acquisitions Inc.'s 11½% notes due 2020 were a bit weaker in Monday trading.

A trader called the issue down a point from Friday at 71.

Elsewhere, a trader said Edison Mission Energy bonds were up "about a point" at 571/2, while Exide Technologies Inc.'s 8 5/8% notes due 2018 were pegged around 60.

And, ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 were quoted at 1¼ bid, 1½ offered.

Fannie, Freddie climbing up

A lawsuit was filed against the Treasury Department over the weekend that claimed the government acted illegally when it placed Fannie Mae and Freddie Mac into conservatorship in 2008.

The suit was filed by a hedge fund, Perry Capital.

Some investors were seeing a good fight on the back of the lawsuit and sent the two mortgage giants' preferreds into higher territory.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) rose 46 cents, or 9.2%, to $5.46. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) increased by a quarter, or 5.02%, to $5.23 as the 8.25% series T noncumulative preferreds (OTCBB: FNMAT) gained 45 cents, or 6.08%, at $7.85.

According to the lawsuit, Congress initially authorized the Treasury to take a 10% dividend from Fannie and Freddie in order for the companies to receive any bailout funds. Last year, the Treasury pushed through a "sweep amendment" that allowed the government to take nearly all of the firms' profits.

The suit claims that the sweep was unlawful, as it was tantamount to buying new securities, which the Treasury was not authorized to do. The lawsuit also says that the Federal Housing Finance Agency did nothing to stop the amendment, allowing the government to take nearly all of the funds.

Perry Capital is reportedly not seeking damages, but wants the changes made last year thrown out, which would be a boon for investors.

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