Distressed debt firms as new Centene deal takes focus; Freeport rebounds; commodities push higher

By Stephanie N. Rotondo

Seattle, Jan. 29 – The distressed debt market ended the week on a positive note, market sources reported Friday.

“Stocks were up a lot,” a trader noted, though GDP data was weak. Still, that encouraged investors that perhaps the Federal Reserve would slow its pace of interest rate increases.

“Everything was doing a little better,” the trader added.

But while the distressed space was higher, traders noted that Centene Corp.’s $2.4 billion two-tranche offering was taking up the bulk of trading volume.

“[Centene] dominated the landscape,” one trader said.

“That new Centene was obviously active,” a second trader said.

Among more distressed issues, Freeport-McMoran Inc. continued to be active following the recent four-notch downgrade from Moody’s Investors Service on Wednesday. But instead of falling, as it did in Thursday trading, it was moving up.

Other commodity-linked names were also doing better on the day.

Continued gains in the price of crude oil helped oil and gas-linked securities gain ground on Friday – at least for the most part.

Williams Co.’s 4.55% notes due 2024 pushed up nearly a point to 65¼, while the 5¾% notes due 2044 inched up a quarter-point to 56¼.

Carrizo Oil & Gas Inc.’s 6¾% notes due 2023 also firmed, rising over 2 points to 70¼.

In the world of oil and gas preferreds, Vanguard Natural Resources LP’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) rose $1.04, or 21.05%, to $5.98. Legacy Reserves LP’s 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) meantime earned 16 cents, or 5.08%, to end at $3.31.

Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP), however, faded 56 cents, or 7.01%, to $7.43.

For its part, domestic crude improved 1.29% on the day, finishing at $33.65 a barrel. While still up, the commodity was up even higher earlier in the session. The modest retreat was due to word that Iran did not intend to participate in any plan to cut production.

Earlier in the week, Russia said that it would be willing to lower oil output amid a global supply glut. OPEC member Saudi Arabia has also reportedly agreed to at least talk about a production slowdown.

Russia, a non-OPEC member, has not cut production in 15 years. Saudi Arabia, as well as some other OPEC members, has been hesitant to slash output even as the price of oil has plummeted.

Elsewhere in the commodities arena, steel producers were on the rise.

At one shop, a trader said United States Steel Corp.’s 6 7/8% notes due 2021 increased 5 points to 45.

A second trader said the name was “creeping up a little more,” seeing the 6.05% notes due 2017 gaining “a couple more points” to end in a 77 to 78 context. The 7 3/8% notes due 2020 were likewise better, hitting a high of 49.

Those gains came despite Standard & Poor’s downgrading the company to B from BB-.

In AK Steel Holdings Corp.’s bonds, a trader said the 7 5/8% notes due 2020 added “a couple points” to close at 39.

Freeport firms

Freeport-McMoran – a name that was busy Thursday as the market digested news of a significant downgrade from Moody’s – was active again on Friday.

In fact, a trader said the name was “the only thing close” to Centene’s newly priced issue in terms of trading volume.

The paper also got a “little bit of a bounce-back,” the trader said, after falling in the previous session.

The trader saw the 2 3/8% notes due 2018 rising almost 3 points to 65¼, as the 3.55% notes due 2022 added a point to 42.

The 5.4% notes due 2034 were unchanged at 39½.

Another trader said the bonds were “probably a little bit better.

“That stuff kind of rebounded a bit,” the trader said.

That trader said the 2 3/8% notes traded up to 64 bid, 65 offered. Longer issues, such as the 2022 paper, traded up to 42, versus levels closer to 40 on Thursday.

On Wednesday, Moody’s cut its senior unsecured ratings on Freeport to Ba from Baa3. The rating agency noted that the change was due to concerns about the company’s level of debt protection, especially considering the decline of copper prices in the last year.

“While Moody’s downgrade [of Freeport bonds] to below investment grade shouldn’t come as a surprise, the order of the magnitude was more than we had anticipated,” wrote Gimme Credit LLC analyst Even Mann in an afternoon comment published Thursday. Mann noted that the revision took the rating down four notches and that the outlook remained negative – meaning more downgrades could come in the near-term.

Moody’s rating alteration came on the heels of Freeport’s quarterly results, which were announced Tuesday. For the quarter, net loss was $4.1 billion, or $3.47 per share. For the fiscal year, net loss came to $12.2 billion, or $11.31 per share.

Operating cash flows for the quarter were $612 million and $3.2 billion for the full year.

Fourth-quarter capital expenditures totaled $1.3 billion and $6.35 billion for 2015. Capital expenditures are expected to be about $3.4 billion for 2016.

During a conference call to discuss the results, management said it was considering alternatives to asset sales, including the possibility of entering joint ventures. Furthermore, it had engaged Lazard to review the company’s oil and gas unit.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.