Distressed bond market stays commodity-driven; Caesars inching higher; Fannie, Freddie improve

By Stephanie N. Rotondo

Phoenix, July 23 – A continuation of slumping commodity prices again pressured the markets on Thursday, including the distressed debt market.

However, one trader noted that “it seemed like there were a few things that rebounded” during the session.

Consol Energy Inc.’s 5 7/8% notes due 2022, for instance, which the trader saw ending “a little bit higher” in a “+/-77” context.

Those bonds had been on the decline after the company warned earlier in the week that it would likely report a loss in the second quarter.

Chesapeake Energy Corp. – another notable name this week – was also inching higher, with the 4 7/8% notes due 2022 closing around 80.

That compared to previous levels around 79, the trader said.

On Tuesday, the oil and gas producer said it was cutting its equity dividend.

The trader even saw FMG Resources’ 9¾% notes due 2022 regaining ground, trading in a 91½ to 91¾ range.

Another market source, however, did not paint as rosy a picture.

That source placed FMG’s 6 7/8% notes due 2022 at 57¾ bid, down just over a point on the day.

The source also saw AK Steel Holding Corp.’s 7 5/8% notes due 2020 at 64½ bid, off over 4 points.

That name has been slipping recently as well, given the plunge in commodity prices, as well as slowed growth in China.

In the oil arena, the source pegged Linn Energy LLC’s 7¾% notes due 2021 at 55 bid, down 5 points.

That name has been on the decline since last week when “Mad Money” host Jim Cramer expressed doubts about the company’s ability to weather the current storm.

Caesars steps up

Caesars Entertainment Corp. could face billions in creditor claims after bankruptcy court judge Benjamin Goldgar denied the company’s stay request.

Creditors of the company’s currently bankrupt Caesars Entertainment Operating Co. unit have brought lawsuits against the parent, alleging that it stripped the opco of assets before putting it into bankruptcy.

Caesars has previously said that if the lawsuits are allowed to go forward, the parent might also find itself in bankruptcy court.

Still, the opco’s second-lien debt – the 10% notes due 2018 – have been moving up the last couple of sessions, likely spurred by news from earlier in the week when the Las Vegas-based casino operator said those bondholders were jumping on board its latest restructuring agreement.

One source called the issue up a deuce at 31 bid.

But another source said the bonds “gave back a little bit of yesterday’s gains,” also placing the paper around 31.

Late Monday, Caesars announced it had inked a deal with second-lien debtholders that would give said holders a forbearance fee of at least $200 million of convertible debt “in consideration for forbearing in respect to certain alleged defaults.”

The agreement will go into effect once 50% of the debtholders have agreed to the deal.

Fannie, Freddie firm

Fannie Mae and Freddie Mac preferreds continued to climb up in the wake of news regarding a recent court ruling that will force the federal government to turn over more than 10,000 documents related to the decision to place the GSEs into conservatorship.

That decision is believed to be a boon for shareholders.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 6 cents to $4.50. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were up a penny at $4.46.

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