Distressed energy bonds in focus post-Doha meeting; AK Steel surges; Calumet debt gets ‘punished’

By Stephanie N. Rotondo

Seattle, April 18 – Distressed debt investors were keeping an eye on energy names on Monday after a meeting held over the weekend in Doha, Qatar, failed to result in an oil production freeze between OPEC and non-OPEC producers.

Domestic crude fell nearly 1% on the day – though it was down as much as 4% earlier in the session – in response to the news. Saudi Arabia was reportedly a major holdout, refusing to participate in any such deal unless Iran agreed to also participate.

Iran, for its part, has been saying that it would not agree to a freeze until it had reached pre-sanction production levels.

Still, market chatter is that no deal is a better conclusion, as it allows the oil market more time to naturally rebalance itself. Investors appeared to be only partly convinced, as oil and gas securities traded mixed on the day.

Traders said there was a fair bit of action going on in Chesapeake Energy Corp.’s 8% second-lien notes due 2022. One trader said the paper traded “about 40 times,” rising “almost 2½ points” to 60.

A second trader called the bonds “pretty active,” seeing the notes rise to a 59 to 60 context from opening levels around 55.

“So they had a nice intraday move,” he said.

Whiting Petroleum Corp. was also busy and heading into higher territory, according to a trader.

He saw the 5¾% notes due 2021 tick up almost a point to 73¾, with about $20 million of the bonds trading. The 6¼% notes due 2023 closed up 1¼ points at 75¼.

However, oil-linked preferreds experienced another sizeable drop in Monday trading.

Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) closed down 39 cents, or 13.4%, to $2.52. The issue was one of the biggest percentage losers of the day.

Legacy Reserves LP’s 8% series A fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYP) meantime lost 21 cents, or 5.44%, ending at $3.62. The 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) were also lower, falling 15 cents, or 3.92%, to $3.68.

And, Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) declined 11 cents, or 3.65%, to $2.90.

AK Steel gains ground

AK Steel Holdings Corp. was also deemed “fairly active” for the day.

A trader said the 7 5/8% notes due 2020 “seemed to continued to bounce,” trading up into the low-80s. The 7 5/8% notes due 2021 hit a high of 79 before they “gave back some of the bounce,” settling in around 76.

“I don’t know if it’s a short-squeeze or not,” the trader said. He noted that the West Chester. Ohio-based steelmaker had announced late last week that it was increasing the current spot prices for all carbon flat-rolled steel by a minimum of $50 per ton, effective immediately on new orders.

“That could be part of it,” he said.

Additionally, he said AK Steel had filed a mixed shelf registration statement with the Securities and Exchange Commission.

However, “I don’t know what they could come to market with,” given the current commodity environment, he said.

At another desk, a trader said AK’s bonds were “all up soundly,” seeing the 2021 paper popping over 5 points to 76 7/8.

Another source placed the 2020 notes at 81¼ bid.

Representatives from about 30 countries met in Brussels on Monday to discuss the steel market and a supply glut that has severely pressured prices. According to a BBC report, China took the blame for its part in the overcapacity issue and said it would take steps to counter it.

Calumet caves in

A trader said Calumet Specialty Products Partners LP’s bonds “got punished a little bit” after the Indianapolis-based company said it was cutting its common stock dividend.

The company also said that it was taking on more debt via a $400 million private placement of 11½% senior secured notes due 2021. Proceeds will be used to bolster the bottom line.

On the news, the 6½% notes due 2021 fell to 62 from 76 previously, according to the trader.

“Yikes,” he said.

Calumet also said it expects to post a quarterly loss of $59 million to $83 million on May 5. Year over year, it is forecasting that liquidity will fall to $7.4 million from $272.8 million.

With the new debt offering, Calumet has debt of over $2 billion.

On Monday, both Standard & Poor’s and Moody’s Investors Service downgraded the company. S&P cut the corporate credit rating to B- from B. Moody’s dropped its corporate family rating to Caa1 from B2.

Fannie, Freddie fall

Fannie Mae and Freddie Mac continued to top the day’s total trading volume, as investors continued to ponder whether or not a U.S. Court of Appeals panel would allow a shareholder lawsuit to proceed.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) fell 17 cents, or 4.28%, to $3.80. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) lost 19 cents, or 4.81%, to close at $3.76.

Both issues were among the day’s biggest percentage losers.

On Friday, a three-judge panel heard nearly three hours of oral arguments in a case shareholders have brought against the government. The case alleges that the so-called “net worth sweep” was illegal and outside the bounds of the agencies’ conservatorship.

Shareholders – including hedge funds Perry Capital LLC and Fairholme Funds – took the case to the appeals court after a trial court in 2014 said there was no merit to the case.

There has been no official ruling fro the appeals court.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.