Bombardier bonds take flight; Fannie, Freddie preferreds gaining ground; Peabody softens on filing news

By Stephanie N. Rotondo

Seattle, April 13 – Distressed bonds were edging higher Wednesday, following the equity tape upward as financials surged.

Bombardier Inc. paper, for instance, continued to firm up in midweek trading as investors reacted positively to recent news of more orders for the company’s struggling C Series aircraft.

Among distressed preferreds, Fannie Mae and Freddie Mac dominated trading in that space as the GSEs continued to climb up. The preferreds were boosted on Tuesday as the market digested a slew of new unsealed documents related to a court case stemming from the government’s 2012 decision to commandeer a majority of the GSEs profits.

For all the strength seen in the market, there were some names that failed to join the surge.

Peabody Energy Corp. was one such name, though there was a good reason: The coal producer –the second largest in the world – filed for bankruptcy protections. The filing – the latest to hit the U.S. metals and mining space – effectively raised Fitch Ratings’ trailing 12-month default rate to 20% from 14.6% for that sector.

Bombardier gains altitude

Bombardier’s recent announcement that it had added more orders for its C Series jetliner continued to push the company’s debt higher on Wednesday.

At one desk, the 7¾% notes due 2020 were seen rising 1½ points to 90½ bid. At another, the 6 1/8% notes due 2023 were called 3 to 4 points better, trading in a 79 to 80 context.

The 7½% notes due 2025 were also deemed better at 80¾ bid, 81 3/8 offered.

On Tuesday, the Canadian transportation manufacturer said that Air Baltic had converted its seven remaining purchase options for the CS300 passenger jet to a firm order, bringing the airline’s total order to 20.

The deal is valued at $506 million.

Bombardier also noted that once the carrier takes delivery of the planes in the second half of 2016, it will be the first airline in the world to operate the new line.

All told, Bombardier – which has struggled to get the C Series planes into production and beyond – has commitments for about 678 of the aircraft, including a total of 250 firm orders.

“While this is a step in the right direction, we still want to wait and see if the ramp-up of the C Series succeeds and the aircraft gains altitude before considering a change in opinion,” wrote Gimme Credit LLC analyst Evan Mann in a comment out late Tuesday.

The independent research firm has a “deteriorating” view of the company.

Fannie, Freddie rise

A preferred stock trader said Fannie Mae and Freddie Mac paper was “moving more” as the GSE-linked preferreds dominated midweek trading.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) closed up almost 4 cents to $4.288. The preferreds were initially up 18 cents, or 4.24%, at $4.43 at mid-morning.

Over 3.8 million shares were exchanged.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) meantime ended 7 cents, or 1.67%, higher at $4.26. The preferreds had ticked up 16 cents, or 3.82%, to $4.35 in earlier trading.

Total volume for that issue came to about 3.78 million shares.

The documents, which were unsealed by judge Margaret Sweeney of Federal Claims Court, appear to hold up the plaintiffs’ allegations that the government knew the agencies were returning to profitability before it made its decision to sweep profits. The sweep was predicated on the notion that the government needed to protect taxpayers in case of a need for another bailout.

Not everyone, however, is convinced the documents will do much for the shareholders’ case.

“It seems a bit of grasping at straws,” one market source said. “A bit of an overreaction.”

The source also noted that the paper was “up more” in Tuesday trading than on Wednesday.

Peabody files

Peabody Energy filed for bankruptcy protections on Wednesday, becoming the latest casualty in the depressed commodity price environment.

On the news, the company’s debt was in decline.

A market source saw the 6% notes due 2018 falling to 6¼ from 6½ previously. However, the bonds did edge up towards 7 around midday, before settling back in.

The source also placed the 10% notes due 2022 in a 6 to 6¼ range, down from levels around 7½.

The company cited weak coal prices, as well as weakness in the Chinese economy for its woes. Additionally, it noted that the cheapness of natural gas and ongoing regulatory issues exacerbated the problems.

As part of its bankruptcy filing, the St. Louis-based company lined up $800 million of debtor-in-possession financing. The package included a $500 million term loan, a $200 million bonding accommodation facility and a $100 million cash-collateralized letter of credit.

Peabody ended 2015 with $6.3 billion in debt, $249 million of mineral lease obligations and $723 million of unfunded pension liabilities.

© 2015 Prospect News.
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