Distressed energy bonds trend lower despite gain in crude; Fannie, Freddie remain weak

By Stephanie N. Rotondo

Phoenix, Aug. 18 – The distressed energy sector continued to be mostly weaker on Tuesday, despite an uptick in crude oil prices.

Benchmark crude rose over 1% ahead of new inventory data from the American Petroleum Institute. The gains were attributed to hopes inventories went down.

Despite the gains, distressed oil names continued to see softness.

SandRidge Energy Inc. – which had previously been moving up following news of a debt exchange and repurchase – came in a bit on Tuesday.

Another oil name declining on the day was Oasis Petroleum Inc., according to a trader.

A market source said that GSE preferreds were “heavily traded” again on Tuesday amid “fear of that story.”

The story to which he was referring was in regards to reports that Claren Road Asset Management, Carlyle Group LP’s hedge fund, was facing nearly $2 billion in withdrawals at the end of the quarter.

Bloomberg reported Monday that investors were looking to take out about 48% of the funds 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 Mae and Freddie Mac.

As Claren Road has previously been big fans of Fannie and Freddie preferreds, the shares have been under pressure since the story printed.

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