Valeant steals spotlight from distressed space; oil and gas remain in focus; AK Steel earnings on tap

By Stephanie N. Rotondo

Seattle, April 25 – Distressed debt traders said the market was forgoing typical distressed investments on Monday for Valeant Pharmaceuticals International Inc. – a name that has used the line between regular high-yield and distressed as a jump rope.

Traders said the name popped after the company said Joseph Papa, the former head of Perrigo Co. LLC, was taking over as chief executive officer.

But as for true distressed credits, one trader said there was “just not a lot of volume.”

Of the names that were moving, the oil and gas sector was front and center as profit taking and worries about production increases were weighing on domestic crude oil prices on Monday.

That, in turn, was keeping oil and gas-linked securities on the radar. However, the sector ended mixed for the day.

A trader said Chesapeake Energy Corp.’s 8% second-lien notes due 2022 declined over a point to 62¼.

However, that same trader said California Resources Corp. was better on the day.

He pegged the 6% notes due 2024 at 32¼, a gain of 1½ points. The 5% notes due 2020 meantime ticked up almost a point to 33.

Legacy Reserves LP’s preferreds were gaining ground, with its 8% series A fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYP) rising 35 cents, or 6.12%, to $6.07. The 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) improved 21 cents, or 3.68%, to $5.92.

Both saw above-average trading for the day.

Vanguard Natural Resources LP and Breitburn Energy Partners LP, however, were weaker on the day.

Vanguard’s 7.875% series A cumulative redeemable preferred units (Nasdaq: VNRAP) declined 39 cents, or 8.32%, to $4.30. Breitburn’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) fell 20 cents, or 8.16%, to $2.25.

Last week, oil prices popped 5% after a three-day oil worker strike in Kuwait helped to raise hopes that a supply glut was coming to an end. But those hopes appeared to be dashed come Monday, as Saudi Arabia said it was nearing completion of a major oilfield and Genscape reported a 1.5 million-barrel build at the Cushing, Okla., delivery point last week.

AK mixed ahead of numbers

A trader said AK Steel Holdings Corp.’s 7 5/8% notes due 2020 dropped 5 points from levels seen last week.

However, he noted that it was “not like there was a lot of volume” in the issue.

He placed the issue in an 80½ to 80¾ context, down from levels in the mid-80s on Friday.

The 7 5/8% notes due 2021 were holding steady around 76½, he said.

The steelmaker’s debt has run up recently, helped in part by price increases at the company level, as well as improving prices in the sector at large.

The trader opined that the day’s losses were “profit-taking from the recent run up ahead of numbers that are going to suck.

“They are clearly trading on optimism for a turnaround in that industry,” he said. “But I think the numbers are going to suck for some time.”

The West Chester, Ohio-based company will release earnings on Tuesday.

Fannie, Freddie relatively active

Fannie Mae and Freddie Mac were trading actively Monday, considering that overall activity was subdued.

“If you look at the volume, it is not very high, it’s just that everything else is even lower,” a market source said.

Furthermore, “their prices moves are not that dramatic,” he said. “So I ascribe that all to someone speculating somewhere.”

The GSEs’ preferreds were trading mixed during the first trading session of the week.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 12 cents, or 3.26%, to $3.80. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ), however, dipped a penny to $3.70.

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