Fannie Mae, Freddie Mac preferreds continue downward drift; DFC down; Walter Energy weaker

By Paul Deckelman

New York, Oct. 2 – Preferred shares of Fannie Mae and Freddie Mac were being pushed lower for a second consecutive session on Thursday. The decline came on top of the big drop seen on Wednesday following an unfavorable court ruling on investor efforts to challenge the federal government’s 2012 action sweeping the profits of the two government-sponsored enterprises into the Treasury rather than letting investors have it as dividends.

Elsewhere, familiar distressed-market name Walter Energy Inc.’s bonds were seen lower, as were such other coal credits as Cliffs Natural Resources Inc. and Arch Coal, Inc.

Also lower were oil names Samson Investment Co. and Quicksilver Resources Inc.

Away from the natural resources companies, traders saw a big drop in DFC Finance Corp.’s six-year notes, although there was no fresh news out on the provider of alternative financial services to the unbanked.

Affinion Group’s bonds remained volatile, bouncing by more than 1 point. They had lost multiple points Wednesday in the wake of big fines and refunds to customers that the federal government is ordering U.S. Bank to pay, totaling $57 million, arising out of problems with identity protection and credit-monitoring services that Affinion was supposed to have provided to those customers.

Fannie, Freddie falter again

For a second consecutive session, Fannie Mae’s and Freddie Mac’s preferred shares were weakening in the wake of a negative court ruling in a case brought by the two big mortgage financing government-sponsored enterprises’ investors against the U.S. government.

“They continue to drift lower,” a trader said, “with decent volume in the name.”

He saw Washington-based Fannie Mae’s 8¼% non-cumulative mandatory convertible preferred stock down 1½ points on the day at 5 bid, on heavy volume of over 300,000 shares.

On Wednesday, he had seen those shares plunge 6 points, their value “cut in half” from prior levels around the 12 mark, on volume of 289,000 shares.

He saw McLean, Va.-based Freddie Mac’s 6.02% preferred paper “just down slightly,” to around 3 bid, with 1.5 million shares traded. On Wednesday, they had lost 4¾ points on the day to close a little above the 3 level, with 1.3 million shares having changed hands.

Fannie Mae’s common stock, which trades over the counter, likewise remained under pressure on Thursday, finishing down 19 cents, or 11.18%, at $1.51, on volume of 78.5 million shares, almost 8 times the average daily turnover. On Wednesday, the shares had slid by almost 37%, on nearly 21 times their usual volume.

Freddie Mac’s over-the-counter common shares plummeted by 40 cents on Thursday, or 21.28%, to close at $1.48. Volume of 48.1 million shares was 10 times the norm. On Wednesday, those shares had nosedived by nearly 29% on more than 26 times their average daily volume.

The shares and the preferreds have been eroding badly after a federal judge on Tuesday dismissed lawsuits brought by investors challenging the U.S. government’s 2012 action sweeping most of the profits from the two GSEs into its own Treasury rather than leaving that money available for possible distribution to investors.

Perry Capital LLC, an investor in both Fannie and Freddie, on Thursday gave notice that it plans to appeal that ruling by U.S. District Judge Royce Lamberth, claiming he erred in allowing the government to take money that otherwise would have gone to investors as dividends.

The Justice Department, on the other hand, had contended that the Treasury move was perfectly legal, claiming in a court filing that shareholders “do not possess an unfettered right to a dividend.”

Walter getting whacked

One of the traders said that Walter Energy’s 9 7/8% notes due 2020 were trading between 32 and 34 bid, with the last trades in a 33-to-34 vicinity. He said that was down around 1 point.

A second trader said Walter seemed to see some fairly brisk volume levels, quoting the 9 7/8% notes steady at 33 bid, on more than $11 million traded.

He saw the Birmingham, Ala.-based metallurgical coal producer’s 8½% notes due 2021 little changed around the 30 bid mark, on volume of more than $20 million.

He also saw 9 7/8% notes due 2020, while its 11% second-lien secured notes due 2020 were holding steady at 47¾ bid, also on over $12 million of turnover.

Elsewhere in the coal space, a trader said that the sector generally “is not feeling too well.”

He saw St. Louis-based Arch Coal’s bonds “still pretty much staying down at their lows,” though on “not a lot of volume.”

He quoted Arch’s 7¼% notes due 2020 at 52-54, with the trades “closer to the bid side, around 52.”

Cleveland-based coal operator Cliffs Natural Resources’ 6¼% notes due 2040 were seen by a market source having dropped 3 points on the day to 73½ bid. The volatile bonds had risen more than 5 points in Wednesday’s dealings.

Quicksilver quietly lower

A trader said that Quicksilver Resources’ bonds were lower on Thursday, quoting its 11% notes due 2021 trading around a 64½-to-65½ context. He said the day’s last trades went off at 65, which he called 1 point lower on the day.

However, he said that he doesn’t think there was much activity in any of the Denver-based independent oil and natural gas exploration and production company’s paper.

About $5 million of the 11% notes traded at those slightly lower levels.

He said that Quicksilver’s 9 1/8% notes due 2019 were quoted between 61 and 63 all day, with the last trade at 61, on $4 million of activity.

While he said the bonds seemed a little higher versus Wednesday’s lows, “over the last couple of days, it’s not much of change, though.”

Volume was “pretty thin.”

He saw “no real activity” in its subordinated 7 1/8% notes due 2016, quoted down 1 point around 37-38 bid, but on “no real volume.”

A second trader saw the 7 1/8s go as low as 35¼ bid, which he called down 3½ points on the day.

Samson slips

Another oil name seen lower was Samson Investment’s 9¾% notes due 2020, with a trader seeing the Tulsa, Okla.-based privately held energy E&P company’s bonds trading between 90 and 92, which he called “down a couple of points from yesterday [Wednesday],” with around $8 million traded.

“But they’ve been bouncing around. It looks like they’ve been quoted that way for the last three days,” he said.

Those bonds had been trading above par as recently as Sept. 18 but then began to slide, though on no firm negative news, bottoming around 88 bid late last week and then moving up to around the 90 mark on Tuesday and to about 92½ on Wednesday.

DFC debt down

Away from the natural resources names, a trader said that DFC Finance’s 10½% notes due 2020 were down 2¼ points on more than $17 million of turnover.

He saw the bonds going home in a 94½-to-94 7/8 range.

A second trader also saw the notes off by 2¼ points, at 94 7/8, in busy trading.

There was no fresh negative news out on the Berwyn, Pa.-based provider of alternative financial services, such as check-cashing services, money orders, unsecured personal loans and secured pawn loans, to people who do not use the services of traditional banks.

The company, then known as DFC Global Corp., had sold $800 million of the notes in June, pricing them at par after the deal was upsized from an originally announced $500 million. The bond issue was part of the financing for its buyout by private equity company Loan Star Funds, a $1.4 billion transaction that closed in early June.

Affinion is improved

A market source saw Affinion Group’s 7 7/8% notes due 2018 up 1¼ point on the day at 83 bid.

The volatile bonds were bouncing back after having fallen more than 4 points on Wednesday to 81¾ bid.

On Tuesday, the notes had risen 2½ points to end at 86 bid.

Those bonds have gyrated against a backdrop of problems with Affinion products sold to one of the biggest banks in the United States, U.S. Bank, considered fifth-largest in terms of assets.

The Stamford, Conn.-based company provides subscription-based lifestyle services, personal protection, insurance and other services on a third-party basis to customers of banks and other types of companies as a means of gaining customer loyalty and increased revenues for those companies.

Federal financial regulators said at the end of last week that U.S. Bank would have to pay $9 million in fines and give customers $48 million in refunds, stemming from problems with identity protection and credit-monitoring services offered by Affinion that the bank sold to its customers.

The problems’ ultimate impact on Affinion has not yet been determined.

© 2015 Prospect News.
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