Energy sector turns south, oil supply concerns rise again; Caesars noteholders denied payment

By Stephanie N. Rotondo

Phoenix, Feb. 18 – The distressed debt market took a backseat to new high-yield issues on Wednesday, but declining oil prices weighed on the energy sector.

Concerns about the oversupply of oil flared up again during the session, pushing oil prices down.

West Texas Intermediate crude dropped $1.81, or 3.38%, to $51.72, while Brent crude lost $2.50, or 4%, ending at $60.03.

The price moves came ahead of a report on supply from the American Petroleum Institute, which was released after the market closed. The report said that crude supplies jumped 14.3 million barrels in the last week. Analysts had forecast a gain of only 3.1 million barrels.

There was also an explosion at an ExxonMobil refinery in Southern California early in the morning.

The explosion left four with minor injuries.

Though oil prices were down, some names were ending with a positive tone.

SandRidge Energy Inc.’s 7½% notes due 2021 rose a deuce to 75 bid, according to a market source. Linn Energy LLC’s 7¾% notes due 2021 were also higher, ending up 1¾ points at 88¾ bid.

In the preferred oil and gas space, the trend was mostly toward the negative side, though there were a couple securities that managed to edge up.

Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) dropped over 1% on the day, ending 23 cents lower at $21.97.

Goodrich Petroleum Corp.’s shares were meantime mixed. The 10% series C cumulative preferreds (NYSE: GDPPC) fell 20 cents, or 1.96%, to $10 per share. But the 9.75% series D cumulative preferreds (NYSE: GDPPD) rose 6 cents to $9.50.

Vanguard Natural Resources LLC’s securities were also mixed on the day.

The 7.875% series A cumulative redeemable preferred units (Nasdaq: VNRAP) finished up 11 cents at $24.43, while the 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) dipped 2 cents to $21.68.

On Tuesday, Vanguard said it was issuing cash distributions for its preferred units on March 17. There was no change in those distributions, but the company did cut its common unit distributions by 10 cents.

In related securities, Regions Financial Corp.’s 6.375% series B fixed-to-floating rate noncumulative preferreds (NYSE: RFPB) were down 18 cents at $25.03.

Regions, a Birmingham, Ala.-based financial services company, has a fair bit of exposure to the oil industry.

Caesars weakens

Caesars Entertainment Corp.’s second-lien debt took a hit Wednesday as the company denied the bondholders a request to pay them the $3.8 billion they are owed.

The 10% notes due 2018 fell over a point to 18 bid, according to a source.

Wilmington Savings Fund Society, acting as trustee for the bondholders, is asserting that the payment is guaranteed under the indenture. Caesars not only disagreed with the assertion in a regulatory filing, but also called the claims “meritless.”

The Las Vegas-based casino operator is currently dealing with the bankruptcy of its Caesars Entertainment Operating Co. unit. There is a deal on the table with first-lien creditors that would eliminate about $10 billion of the units $18.4 billion debt load.

However, second-lien noteholders are alleging that the company had acted fraudulently in the transfer of certain assets, claiming that said transfer stripped the creditor class of assets.

Fannie, Freddie give up gains

Fannie Mae and Freddie Mac preferreds were giving up the some of the previous day’s gains in midweek trading.

“They are still popping around,” a trader said. “Most are down about 10 cents.”

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 2 cents to $4.55. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were down 17 cents, or 3.61%, at $4.68.

The agencies’ preferreds were up 9% to 12% on Tuesday, as investors reacted to positive comments from Bill Ackman and a story regarding the government’s assertion of presidential privilege on some documents in a lawsuit with shareholders.

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