Fannie, Freddie dominate distressed; Arch Coal, other natural resources names again active

By Paul Deckelman

New York, Oct. 1 – The distressed debt market opened the year’s fourth and final quarter on Wednesday with a sharp downside move by the preferred shares and common equity of the two giant government-sponsored enterprises that provide much of the liquidity for mortgage financing in the United States, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp.

The securities of Fannie Mae and Freddie Mac nosedived after a federal judge quashed investor lawsuits that challenged the federal government’s 2012 action sweeping the profits of the two GSEs into the U.S. Treasury.

Elsewhere, traders once again saw fairly busy activity in the bonds of natural resources companies, including such sectors as coal and oil and natural gas.

Among the names seen trading around were coal producers Arch Coal Inc., Alpha Natural Resources Inc. and Cliffs Natural Resources Inc. as well as oilers Samson Investment Co. and Quicksilver Resources Inc.

Traders saw activity – though not much price movement – in Momentive Performance Materials Inc.’s bonds.

Affinon Group’s bonds lost multiple points, although on not much volume, in the wake of big fines and refunds to customers that the federal government is ordering U.S. Bank to pay, totaling $57 million. The fines arose out of problems with identity protection and credit-monitoring services that Affinion was supposed to have provided to those customers.

Fannie and Freddie flounder

A trader noted that Fannie Mae and Freddie Mac preferred stock lost half their remaining value after a federal judge dismissed lawsuits brought by investors challenging the U.S. government’s 2012 action sweeping most of the profits from the two government-sponsored enterprise mortgage-finance companies into its own Treasury, rather than leaving that money available for possible distribution to investors.

“That’s pretty big news, all on the judge’s ruling,” he said.

A second trader agreed that the distressed market “was pretty much dominated by the GSEs today. Fannie and Freddie stocks and preferreds were by far the most active things trading.”

He said, “Some of the Fannie on-the run preferreds were trading with a 4-handle,” which was down from previous levels around 10.

The first trader quoted Washington-based Fannie Mae’s 8¼% non-cumulative mandatory convertible preferred stock down 6 points, “cut in half” to close at 6.60, with 289,000 shares traded.

“Anything with a coupon – that was the news of the day – literally right in half, so that’s ugly, down 6 points. In the whole [capital] structure, they’re all down that much.”

Freddie Mac’s preferred shares “were the same thing,” he continued.

The Tysons Corner, Va.-based GSE’s 6.02% paper were closing at 3.20, down 4¾ points, he said, with 1.3 million shares having traded.

“There are a bunch of them, they’re all like that,” the trader added.

Fannie Mae’s stock, which trades over the counter, was likewise massacred, plunging by 99 cents, or 36.80%, to end at $1.70. Volume of 142 million shares was nearly 21 times the norm.

Freddie Mac’s over-the-counter shares swooned by 76 cents, or 28.79%, to finish at $1.88, on volume of 79.4 million, more than 26 times their average daily turnover.

“That’s a lot of value that disappeared today,” he concluded.

“An awful lot of funds have big positions in these, so they’re not happy today.”

Coal, oil names stay active

Among the natural resources names, which had been pressured last week and on Monday but most of which were rebounding on Tuesday, Arch Coal’s bonds were “still low,” a trader said.

He saw the 7¼% notes due 2021 finishing around 47 or 48 bid, calling that down 1 point, “and they’ve been falling pretty steadily over the last week.”

The coal names “still seem to be heavy,” he said.

A second trader said that St. Louis-based Arch’s bonds “were a little bit lower,” pegging its 2021 paper at 47½ bid, which he said was down “at least a point.”

He saw its 2019 notes around 54 bid, which he said was also down around 1 point.

A market source at another desk saw Bristol, Va.-based coal producer Alpha Natural Resources’ 6¼% notes due 2021 going home at 57 3/8 bid, which he said was down 1 5/8 points on the day.

But he saw Cleveland-based Cliffs Natural Resources’ 6¼% long-term bonds due 2040 gain nearly 5 points on the session to close at 76½ bid.

Among the oil and gas names, Samson Investment’s 9¾% notes due 2020 were going home at around 92½ bid, on volume of over $7 million.

A trader called the Tulsa, Okla.-based privately held oil and natural gas exploration and production company’s bonds “a couple of points higher” than they had been on Tuesday, when they were mixing around in a 90-to-91 range.

Those bonds had been trading above par as recently as Sept. 18, but then began to slide, though on no firm negative news, bottoming around 88 bid late last week and then moving up to around the 90 mark on Tuesday.

A trader said that another recently underperforming name, Quicksilver Resources, “doesn’t seem to be all that active.” He characterized the Denver-based energy company’s paper as mostly unchanged.

He saw its 9 1/8% notes due 2019 trading between 61 and 63 and its 11% notes due 2021 in a 64 to- 66 context, while its subordinated 7 1/8% notes due 2016 traded in a 39 to 41 range.

But he said there was “really no volume” in the latter issue.

“They seemed to be pretty quiet on the day, quoted unchanged from this morning.”

Another market source located its 7 1/8s at 38½ bid, calling the bonds down a deuce on the day.

Momentive movement

A trader said that he saw “a little activity in Momentive,” quoting its 8 7/8% notes due 2020 in an 89½ to 89 context, with about $6 million of the bonds having changed hands.

With the last trades going off at 89, he said the notes were “pretty much unchanged.” He said the notes were “down a few points from last week, but this week, it’s been right around here the last few days, so it’s staying at its low.”

The Waterford, N.Y.-based producer of silicon, quartz and other specialty materials has been restructuring via Chapter 11 since April.

The federal bankruptcy court judge overseeing that process recently approved its plan of reorganization, which aims to slash more than $3 billion of debt from its balance sheet, leaving some $1.3 billion of outstanding obligations. However, several groups of creditors continue to oppose the plan and subsequently filed new legal motions.

Affinion off

Affinion Group’s 7 7/8% notes due 2018 closed the day at 81¾ bid, down 4¼ points

However, a trader said that volume was relatively light, with only a couple of large-sized trades.

Those bonds have recently been volatile. On Tuesday, they had been among the better performers, rising 2½ points to end at 86 bid.

The bonds have gyrated against a backdrop of big trouble for one of the company’s big customers, which could have negative repercussions on Affinion.

The Stamford, Conn.-based company provides subscription-based lifestyle services, personal protection, insurance and other services on a third-party basis to customers of banks and other types of companies as a means of gaining customer loyalty and increased revenues for those companies.

Federal financial regulators said at the end of last week that U.S. Bank – the fifth-biggest bank in the U.S. on an asset basis – would have to pay $9 million in fines and give customers $48 million of refunds, stemming from problems with identity protection and credit monitoring services offered by Affinion that the bank sold to its customers.

© 2015 Prospect News.
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