Samson Resources debt up as coupon skipped, deal reached; energy mixed; Fannie, Freddie weaken

By Stephanie N. Rotondo

Phoenix, Aug. 17 – The distressed debt market was mixed Monday, as investors digested mixed economic data and another decline in crude oil prices.

The Empire State manufacturing index reportedly showed a contraction in July, while U.S. homebuilder sentiment hit highs not seen in a decade.

Oil meantime fell nearly 1.5% – a new six-year low – after Genscape Inc. reported that stockpiles at the Cushing, Okla. delivery point rose last week, fueling concerns about a supply glut.

In the oil and gas space, bonds were mixed on the day. However, Samson Resources Corp.’s bonds were moving up on news the company had reached a restructuring agreement with second-lien debtholders and existing stockholders.

The agreement will be implemented via Chapter 11 proceedings.

In the world of distressed preferred stocks, Fannie Mae and Freddie Mac paper were under pressure in Monday trading. A market source attributed the softness to troubles at a hedge fund that has historically been a “big proponent” of the GSEs’ preferreds.

Samson up as deal inked

Tulsa-based Samson Resources announced on Monday that it had inked a restructuring deal with 45.5% of its second-lien debtholders and stockholders.

The terms of the deal will be implemented through a bankruptcy filing. Additionally, the company said it will not make its coupon that came due Monday.

On the news, the 9¾% notes due 2020 jumped to 2, trading flat, or without accrued interest.

“They were almost trading at zero,” a trader noted. “So that’s a big move, almost a 200% move.”

Under the deal, second-lien lenders will invest a minimum of $450 million to provide liquidity and to pay down first-lien debt. Those lenders will also backstop an equity rights offering.

In response to the news, both Moody’s Investors Service and Standard & Poor’s downgraded the company. Moody’s dropped its corporate family rating to Ca from Caa3 and the senior unsecured notes to C from Ca.

S&P meantime cut its corporate credit rating to D from CCC-. The second-lien debt and unsecured notes ratings were also lowered to D, from CCC- and C, respectively.

Energy ends mixed

The rest of the distressed energy space was mixed on the day.

SandRidge Energy Inc. paper continued to improve following Friday’s news of a debt redemption and exchange.

One trader said the 8 1/8% notes due 2022 and the 7½% notes due 2021 – both of which are part of the offer – gained nearly a point, with both closing at 30¼. The 8¾% notes due 2020 – another subject of the offer – rose over a point to 31¼.

At another desk, the 7½% notes were deemed up 1¼ points at 30¼.

Energy XXI bonds were also firming up. It was reported last week that the company was struggling to get a debt deal done with bondholders, though it also announced that it had cut its capital expenditure budget.

Despite the capex cut, the company maintained its production targets.

A trader saw the 7½% notes due 2022 inching up a touch to 17½, while the 6 7/8% notes due 2024 rose half a point to 17¾.

But other recently topical names did not fare as well.

Murray Energy Corp., for instance, saw its 11¼% notes due 2020 weaken nearly a point to 46½, according to a trader.

The coal producer lowered its outlook on Friday, which resulted in a nearly 10-point drop in the bonds.

Claren woes weigh on Fannie, Freddie

A market source speculated that Fannie and Freddie preferreds were “probably down because of very negative article on Claren Road hedge fund.

“The story circulating is that the fund is facing almost $2 billion in withdrawals by the end of September,” the source added.

Bloomberg reported Monday that investors were looking to take out about 48% of the fund assets this year as losses mount up. The withdrawals began to kick up last year when the fund reported its first yearly loss due to weak returns from Fannie and Freddie.

On the news, Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined a dime, or 2.06%, to $4.75. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) dropped 18 cents, or 3.69%, to $4.70.

On a percentage basis, Claren Road’s main fund had lost 7.2% in value since the beginning of 2015, according to the Bloomberg piece. Another 1.7% was lost during the first two weeks of August.

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