Frontier continues earnings fall, Revlon off; energy names surge, but PDVSA, Venezuela plunge

By Paul Deckelman

New York, Nov 3 – Frontier Communications Corp.’s bonds continued to slide on Friday.

They have been taking a beating from investors in the wake of disappointing numbers the telecommunications company released earlier in the week.

Another big loser was cosmetics maker Revlon Inc., which reported a quarterly loss on Friday.

Traders said that oil and gas names such as California Resources Corp. and Denbury Resources Inc. ruled the roost, fueled by a surge in world crude oil prices.

But there was frenzied trading in Venezuela’s sovereign debt and in Petroleos de Venezuela SA bonds after Venezuelan president Nicolas Maduro announced at a televised event in Caracas late Thursday that he wants to restructure the country’s international debt.

Frontier fall continues

A trader said that Frontier Communications paper “just continues to sell off,” taking its lumps for a third straight session after the Stamford, Conn.-based telecom services provider reported disappointing quarterly results, including a continued erosion of its business, residential and broadband subscriber bases.

Its 10½% notes due 2022 dropped by 2 1/8 point to 81¾ bid while its 11% notes due 2025 were also down more than a deuce on the day, closing at 78 bid.

Volume in both of those credits was over $40 million.

Revlon in retreat

Another sizable loser on the day following a poorly received quarterly earnings report was Revlon.

The New York-based cosmetics company’s 5¾% notes due 2021 were anything but beautiful on Friday, plunging more than 5 points on the day to close at 81¾ bid, with over $31 million traded.

Its 6¼% notes due 2024 were likewise under pressure, finishing at 66½ bid, with over $20 million changing hands.

Energy names on the upside

Not all was gloom and doom – traders said that energy-related credits were solidly higher in Friday’s trading, helped by yet another surge in world crude oil prices.

Los Angeles-based oil and natural gas exploration and production operator California Resources’ 8% notes due 2022 “have been lately outperforming” on the back of the crude oil price rise, a trader said, and it was the same story on Friday, with the bonds up more than 2 points, ending at 69 5/8 bid on volume of more than $20 million.

Plano, Texas-based E&P credit Denbury Resources’ 9% notes due 2021 firmed by ½ point to 99½ bid, with over $120 million traded.

Houston-based Jones Energy Inc.’s 6¾% notes due 2022 zoomed more than 3 points on the day to end at 80 7/8 bid, on volume of more than $11 million.

December-delivery West Texas Intermediate crude jumped by $1.10 per barrel in Friday trading on the New York Mercantile Exchange, settling at $55.64, while January-delivery North Sea Brent crude did even better in London trading, improving by $1.45 per barrel to $62.07.

Venezuela in focus

But the surge in world oil prices did little or nothing to help the already battered bonds of major oil producer Venezuela or those of its state-run oil monopoly, PDVSA.

That paper got hammered down on Friday in the emerging markets space for reasons completely unrelated to the fluctuations of energy prices after Venezuelan president Nicolas Maduro announced at a televised event in Caracas late Thursday that he wants to restructure the country’s international debt.

The Venezuela and PDVSA bonds reacted “swiftly” after investors had been cheered earlier in the week on assertions that a key $1.1 billion payment for the PDVSA 8½% notes due Nov. 2 was being made. Maduro confirmed that this payment is being made.

The PDVSA 8½ notes were at 95 on Wednesday, well short of par, even though traders expected the country intended to pay back the bond. But some “still had doubts,” a U.S.-based trader of Venezuela and PDVSA bonds said.

As for Friday, the bonds were immediately trading flat, or without accrued interest, and the front end of the sovereign curve, including bonds due 2020, 2021 and 2022, dropped 20 to 30 points, one market source said. A second source said the whole curve was down 4 to 25 points, with the front end underperforming.

The market was volatile with some bid-ask spreads as wide apart as 10 points but there was some recovery in some bonds by late morning.

The PDVSA 2022 bonds dropped to 28 from 48 on Friday. The Venezuela benchmark bond due 2028 fell to 28 from 35. The Venezuela bonds due 2018 plunged to 40 from 74.

PDVSA’s 2020 bonds had recovered some losses to trade around 70. Two weeks ago this bond was at 83 bid, 84 offered.

The bonds were “reacting very swiftly” to the announcement, a market source said.

“It was a very confusing announcement. We don’t really know what is going to happen next. There will be uncertainty for several weeks,” the source said.

Maduro said Thursday that Venezuela wasn’t going to be able to continue making payments on its debt, blaming the United States and sanctions imposed in August for bringing the country to this point.

In fact, Venezuela’s financial problems stem from earlier problems including failed socialist policies and a drop in crude oil prices, Venezuela’s primary source of revenue. The country has suffered severe shortages, including even basic food and medicine, in the face of the financial squeeze.

Despite the economic problems, Maduro and his predecessor Hugo Chavez, who died in 2013, had kept up payments on some $70 billion of debt until this point.

Victor Fu, a strategist with Stifel Nicolaus & Co., said in a note early Friday that “Maduro’s plan to restructure the country’s debt after paying the PDVSA 17s’ $1.1 billion principal is counter-intuitive. We suspect that the Venezuelan government-related entities might own a lot of the front-end PDVSA ’17s and ’20s and might have bought more of these bonds at low levels after the constituent assembly referendum; otherwise this $1.1 billion could be used to buy essential goods for Venezuelan people, as Maduro claimed to cover ‘the necessities of the country.’”

The constituent assembly is a group of more than 500 Maduro supporters installed by a vote in July that many in the international community view as fraudulent. The powers of the constituent assembly override the national assembly of lawmakers and have helped Maduro concentrate power, causing the United States to label him a dictator and impose sanctions.

“It’s very uncertain. I don’t think it’s even feasible to do restructuring under the sanctions,” a New York-based analyst said.

Stifel’s Fu said that his firm considers a political regime change in Venezuela and/or a lift of U.S. sanctions necessary conditions for a restructuring.

© 2015 Prospect News.
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