Commodity-linked debt sinks amid depressed pricing on metals, oil; Fannie, Freddie drop

By Stephanie N. Rotondo

Seattle, Dec. 8 – Continued declines in commodity prices were again dragging down the distressed debt space on Tuesday.

“Metals, mining and oil were all down,” a trader said.

Domestic crude oil, for instance, traded down 6 cents to $37.59 a barrel. The commodity stemmed earlier losses, which had pushed prices to just south of $37, the lowest level in seven years.

And with steel prices continuing to fall – that commodity has dropped nearly 30% in the last year – and iron ore trading in the high-$30 range, anything commodity-linked was spiraling downward.

Take, for instance, Chesapeake Energy Corp. On Dec. 2, the Oklahoma City-based oil and gas company launched a private exchange offer for 10 series of notes maturing 2017 through 2023. Participants will receive up to $1.5 billion of 8% senior secured second-lien notes due 2022.

Ever since the exchange was announced, Chesapeake bonds have plummeted, and Tuesday’s session was no different.

A trader saw the 4 7/8% notes due 2022 sliding 1½ points to 29, as the 7¼% notes due 2018 slipped a point to 53 7/8. The 6 1/8% notes lost a point as well, closing at 29¼, the trader said.

The 5¾% notes due 2023 were deemed unchanged at 30½.

At another desk, the 6 5/8% notes due 2020 were called 4 points weaker at 31 bid.

Among other oil and gas names, Consol Energy Inc.’s 5 7/8% notes due 2022 were seen falling over 3 points to 63¾.

A trader said the issue was “the most active distressed name.”

Another market source pegged the 8% notes due 2023 at 71 bid, off nearly 2 points.

In Linn Energy LLC paper, a trader said the 7¾% notes due 2021 were “down a point from Friday,” trading at 17½. A second source placed that issue at 17¼ bid, down almost 2 points.

Energy XXI Ltd. was another weaker name, as a trader saw the 8¼% notes due 2018 declining 3 points to 29.

The 9¼% notes due 2017 finished a point lower at 28¼.

Among steel names, a trader said AK Steel Holdings Corp.’s 7 5/8% notes due 2021 dropped “2 and change points” to 29 3/8.

That trader also noted that ArcelorMittal bonds were heavy, seeing the 10.85% notes due 2019 retreating over 4 points to 98¼, as the 6½% notes due 2021 declined over 2 points to 79¼.

Another source called AK Steel’s debt off almost 2 points at 71 and ArcelorMittal’s 6¼% notes due 2021 down nearly 5 points at 79¼ bid.

That source also saw United States Steel Corp.’s 7% notes due 2018 softening by 4 points, ending at 62.

Among iron ore miners, Fortescue Metals Group Ltd.’s 9¾% notes due 2022 continued to decline, a trader said. He said the paper ended Tuesday at 87, which was down from a 92 to 93 context on Friday and 88 on Monday.

A second trader placed the 6 7/8% notes due 2022 at 63, down a deuce.

More pain for Fannie, Freddie

The sell-off in Fannie Mae and Freddie Mac preferreds continued in Tuesday trading, much to the dismay of one market source.

The source said there was news out regarding shareholder lawsuits currently pending against the government. In the wake of newly released discovery documents, the courts are allowing the plaintiffs to amend their lawsuits, the source said.

“I would think that would be positive,” the source said. But as the preferreds remained weak, he opined that “it could be tax loss selling going into year-end.”

Fannie’s 8¼% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 6 cents, or 1.56%, to $3.78. Freddie’s 8 3/8% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) fell 12 cents, or 3.12%, to $3.73.

Both of the non-paying securities were seen dominating overall trading on the day.

© 2015 Prospect News.
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