Distressed bonds continue to retreat; Endeavour up on restructuring plan; Cliffs debt rebounds

By Stephanie N. Rotondo

Phoenix, Oct. 14 – The distressed debt market was weaker as it came back from the three-day weekend.

“Everything continues to kind of struggle,” one trader said.

“Things are just generally weaker,” said another trader.

For its part, the KDP High Yield Index dipped below its recent 52-week low. Tuesday’s reading was 71.3, with a 5.82% yield. That compared to Friday’s level of 71.65, with a 5.72% yield.

The recent 52-week low – hit just last month – was 71.53.

Despite the ongoing softness in the fixed-income space, there were a couple distressed names that went against the grain.

Endeavour International Corp. announced late Friday that it had reached a restructuring agreement with a majority of bondholders. The company filed for bankruptcy to facilitate that plan.

On the news, the company’s bonds surged “about a dozen points,” according to one trader.

Cliffs Natural Resources Inc. also “rebounded some,” a trader said. The gains came as iron ore prices were rising and investors were mulling news that Glencore had approached the company about n asset sale.

Endeavour files

Endeavour International inked a restructuring agreement with a majority of bondholders on Friday, resulting in a bankruptcy filing.

The plan is expected to shed some $568 million of debt and reduce interest expenses by 43%.

That news came out late on Friday and with the bond market closed Monday for Columbus Day, investors didn’t have a chance to react to the news until Tuesday.

And react they did, pushing the bonds up about 12 points on the day.

One trader placed the 12% notes due 2018 in a 75 to 76 context, up from 63½ on Friday.

“That’s up a bunch,” he said. “Obviously, the creditor plan is probably what is driving it.”

Another trader also pegged the issue around 75, adding that he hadn’t seen anything in the 12% second-lien notes.

“I guess they are around 20,” he said.

On Sept. 2, the Houston-based oil and gas company with assets in the North Sea missed a $33.5 million grace period. Last week, it secured a couple one-day forbearances after its 30-day grace period expired, giving it more time to deal with bondholders.

Under the restructuring plan – which will not include the company United Kingdom-based subsidiaries – debt holders will receive $262.5 million of new debt and another $237.5 million of new convertible preferred stock. The company was given 45 days to file a plan of reorganization based on the deal with bondholders and a total of 200 days to emerge from bankruptcy.

Cliffs’ debt rallies

Cliffs Natural Resources was gaining ground Tuesday, after being heavy for the past few weeks.

“I think some people thought it got oversold,” a trader said, noting that the stock was higher and that there were some headlines that could have been fueling the gains as well.

The trader saw the 4.95% notes due 2018 in a 78 to 79 range on Tuesday, versus levels between 71 and 72 on Friday. The 4 7/8% notes due 2021 closed around 68, up from 64.

The equity (NYSE: CLF) rose 82 cents, or 9.94%, to $9.07.

Cliffs has been looking to sell off its non-core coal assets in order to focus on its core business, iron ore. A rising price for that commodity was given at least partial credit for the day’s gains.

On Friday, it was also reported that Glencore had approached the company in regard to its iron ore assets in Australia. Those talks – deemed “preliminary” by sources familiar with the situation – took place about a month ago.

It’s not clear if those talks are ongoing, but the news came just day’s after Rio Tinto said it had been approached by Glencore in July.

AMD remains weak

Advanced Micro Devices Inc.’s bonds “continued to be softer,” a trader said Tuesday.

The trader deemed the 7% notes due 2024 off 3 points at 88.

Another market source called the 7½% notes due 2022 off nearly 4 points at 92¾ bid.

On Wednesday, AMD said that Rory Read, president and chief executive officer, is leaving the post he has held for the last three years as the company attempts to take market share from Intel.

Lisa Su, chief operating officer, will take over.

While the management transition was not overly surprising, the timing of the change has some wondering what the company’s earnings will look like.

The chipmaker is scheduled to release third-quarter earnings on Thursday.

Fannie, Freddie in focus

Fannie Mae and Freddie Mac preferreds rose in early trading, but gave back those gains by the end of business.

Initially, Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 33 cents, or 7.76%, at mid-morning, trading at $4.58. Freddie’s fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) had put on a quarter, or 5.4$, to $4.80.

But by the market’s close, Fannie’s shares had fallen 18 cents, or 4.24%, to $4.07, while Freddie’s fell 24 cents or 5.27%, to $4.31.

The preferreds had started to climb back up on Friday, as Fairholme Funds said it had officially filed an appeal against a Sept. 30 decision that dismissed investors lawsuits regarding the government’s takeover of a majority of the agencies’ profits.

U.S. Federal Judge Royce Lamberth was responsible for the decision, which said that the government did not do anything illegal by consigning the profits.

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