Penn Virginia slips, advisors hired; Linn downgraded, bonds drop; Tronox weak ahead of numbers

By Stephanie N. Rotondo

Phoenix, Aug. 4 – Despite a rebound in crude oil prices, there was still weakness in topical distressed oil and gas names on Tuesday.

Penn Virginia Corp. saw its debt drop as much as 5 points on the day. The declines came as the company said it had hired advisors for possible asset sales and other financial advice.

Linn Energy LLC paper also continued to lose ground. The bonds began retreating on Thursday on the heels of its earnings results. Come Tuesday, the paper remained pressured as Moody’s Investors Service downgraded the company’s credit rating.

Away from oil and gas, chemical company Tronox Ltd. was slated to bring its earnings after the market closed Tuesday, with a conference call scheduled for Wednesday morning. Ahead of the release, the bonds were seen sliding.

Penn hires advisors

Penn Virginia bonds took a five-point hit on Tuesday after the Radnor, Pa.-based company said it had hired Jefferies LLC to act as a financial advisor in relation to “asset-level financing transactions.”

One trader called the 8½% notes due 2020 down 4¾ points on “pretty heavy volume” at 40¼. Another trader said the paper was “down another 5 points,” trading around 40.

Specifically, Penn Virginia is looking at ways it can monetize its Eagle Ford assets. Jefferies will also provide guidance on other ways the company can improve its bottom line.

On Wednesday, the company reported its second-quarter results, showing an increased loss of $86.2 million, or $1.19 per share.

Liquidity stood at $215 million.

Linn downgraded

Linn Energy’s slide continued in Tuesday trading, as Moody’s cut its rating on the Houston-based oil and gas company.

A trader said the 8 5/8% notes due 2020 dropped almost 5 points to 55¼. The 6½% notes due 2019 were down similarly at 56¾.

The trader pegged the 6¼% notes due 2019 at 55½, off 1½ points.

A second trader said the name was down 3 to 4 points, with the 8 5/8% notes ending around 55½, down from the high-50s previously.

Moody’s cut Linn’s corporate family rating to B2 from Ba3. The senior notes were dropped to B3 from B1.

The rating agency attributed the rating changes to increased leverage and the high cost of capital.

On Thursday, Linn announced its second-quarter results. Net loss was $379 million and revenues declined 46% to $322 million.

Additionally, Mark Ellis, chief executive officer, said that management was recommending that the board of directors suspend its stock dividend.

Tronox soft pre-earnings

Tronox bonds were drifting down as the market geared up for the company’s earnings announcement.

“It looks like people were trying to head for the door before earnings,” a trader said.

That trader deemed the 6 3/8% notes due 2020 off over a point at 81.

Another trader also placed the debt at 81, calling that “down a point.”

The Stamford, Conn.-based chemical manufacturer was expected to release its earnings after Tuesday’s close, though those figures were not available as of press time.

A conference call is scheduled for Wednesday morning.

Abengoa pressured again

Abengoa SA’s 7¾% notes due 2020 were down “another 7 points,” according to a trader on Tuesday.

The bonds had ended Monday’s session considerably weaker, according to a trader, losing about 10 points on the day.

The slide came as it was reported that the company’s capital plan failed to encourage investors.

On Monday, Abengoa – a Seville, Spain-based renewable energy company – said it wanted to raise €650 million of new capital. Additionally, it wants to divest itself of about €500 million in assets.

The latter figure was up from those presented on Friday during an earnings conference call. Participants in that call also learned that the company’s free cash flow would be about €800 million lower than previously forecast.

“I don’t think investors think they will get that deal done,” a trader said.

Freddie sees bigger profit

A source said that the market “responded favorably” to fresh earnings out of Freddie Mac on Tuesday.

Freddie’s 6.55% noncumulative perpetual preferreds (OTCBB: FMCKI) improved 10 cents, or 2.33%, to $4.40. Fannie Mae’s 8.25% series S noncumulative preferreds (OTCBB: FNMAS) rose 2 cents to $4.97.

At mid-morning, the latter issue was up 28 cents, or 5.66%, higher at $5.23.

For the second quarter, mortgage giant Freddie reported net income of $4.2 billion. That compared to income of $1.4 billion for the same period of 2014.

The quarter marked the GSE’s 15th consecutive quarterly profit.

The better results were attributed to higher home loan purchases and to the selling of more riskier mortgages.

Given the amended terms of its conservatorship, the U.S. government will take a bulk of the quarter’s profits. Freddie intends to pay back $3.9 billion to taxpayers, bringing its total dividend payments to $96.5 billion.

Freddie received $71 billion in bailout funds in September 2008.

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