Community Health dips ahead of earnings; Frontier pushes up; Freddie dividend questioned

By Stephanie N. Rotondo

Seattle, Aug. 1 – There were “no real wild swings” in distressed bonds on Tuesday, a trader reported.

The trader also noted that most of the day’s activity was centered on “all generic high-yield stuff.”

However, there was some action going on in Community Health Systems Inc. and Frontier Communications Corp. ahead of the release of quarterly results.

Both companies announced earnings after the close.

Revlon Inc. paper was also in play, as the market prepares for the cosmetic company’s own earnings announcement on Friday.

A trader said the 5¾% notes due 2021 ticked up nearly a point to 84, while the 6¼% notes due 2024 added a point to close at 77.

In the oil and gas space, California Resources Corp.’s 8% second-lien notes due 2022 were “a little bit lower,” a trader said, though he added that “there’s not much trading.”

He deemed the debt a point lower in a 62½ to 63 context.

Another market source also called the notes a point weaker at 63½.

Denbury Resources Inc.’s 6 3/8% notes due 2021 were meantime higher, rising half a point to 59½.

The moves in CRC and Denbury exemplified what was going on in the sector at large, which was mixed overall.

As for domestic crude oil prices, they retreated over 2% – falling under the $50-mark again – on concerns OPEC was not holding to its agreement to cut production.

Community Health slips

A trader said Community Health Systems’ 6 7/8% notes due 2022 were “relatively active” ahead of the company’s post-close earnings release.

The trader said the debt dipped almost half a point to 85.

For the second quarter, net loss came to $137 million, or $1.22 per share. That compared to a loss of $1.43 billion, or $12.91 per share, the year before.

The company had incurred a $1.38 billion operational loss the previous year.

Operating revenue declined 9.7% to $4.14 billion.

On an adjusted basis, the company reported a loss of 25 cents per share.

Analysts had forecast a loss of 1-cent per share, on revenue of $4.11 billion.

Frontier firms

Frontier Communications’ bonds were slightly better at the close and a trader said the debt was “rallying a little bit” in after-hours dealings.

The gains came ahead of – and in response to – the company’s quarterly results.

The trader said the benchmark 11% notes due 2025 and the 10½% notes due 2022 were up about half a point after the numbers came out.

He placed the former in a 91½ to 91¾ context and the latter at 94½.

Another trader saw the 7 5/8% notes due 2024 inching up a quarter-point before the earnings came out, pegging the notes at 82.

For the quarter, Frontier reported an adjusted loss per share of $1.10 on revenue of $2.3 billion.

Analysts had expected a loss per share of 91 cents on revenue of $2.31 billion.

Freddie dividends in question

Freddie Mac’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were a touch lower as the GSE reported earnings.

The preferreds fell a nickel to $6.55. Fannie Mae’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were meantime unchanged at $6.80.

For its part, Fannie will announce earnings on Thursday.

As for Freddie, the mortgage giant posted net income of $1.66 billion, which compared to $993 million the year before.

Net interest income was steady at $3.38 billion.

While Freddie said it could make a $2 billion dividend payment to the U.S. Treasury, language in the earnings release indicated that there was some question as to whether that payment would in fact be made.

The alteration in the language came just months after Federal Housing Finance Agency Director Mel Watt told Congress that he was considering allowing the GSEs to build up more of a capital buffer.

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