Oil, gas names stay weak despite oil rebound; iron, coal decline as forecasts cut; Ocwen falls

By Stephanie N. Rotondo

Phoenix, Jan. 14 – Commodities were again the main focus of the distressed debt market, traders reported Wednesday.

In the oil and gas space, oil prices were gyrating, eventually ending with a positive tone. However, that did little to boost the sector’s bonds.

Meanwhile, coal and iron names – such as Cliffs Natural Resources Inc. and Alpha Natural Resources Inc. – were weaker as Citigroup cut its pricing forecasts for both resources.

Away from commodities, Ocwen Financial Corp. continued to be under pressure as investors reacted to news out Tuesday regarding the company’s mortgage lending and servicing license in California.

Oil, gas remain weak

Oil prices managed to rally a fair bit by the end of midweek trading, though that did little to help oil and gas bonds.

West Texas Intermediate crude improved $2.58, or 5.62%, to $48.47, while Brent crude gained $2.09, or 4.49%, to $48.68.

One trader did note that some names, like California Resources Corp., were “seesawing with oil.” However, in the case of CalRes’ 6% notes due 2024, they were still weaker, ending half a point lower at 79.

The trader added that the issue was lower earlier in the day.

The CalRes 5½% notes due 2021 held steady at 80½, he said.

Linn Energy LLC debt meantime declined at least a point on the day, with the trader pegging the 8 5/8% notes due 2020 off nearly 2 points at 85½.

The 6½% notes due 2019 closed at 82½, down 1¼ points.

At another desk, Linn’s 7¾% notes due 2021 were seen at 82 bid, down 1¾ points.

In SandRidge Energy Inc.’s bonds, a trader said the 8 1/8% notes due 2022 lost a point to close at 63, while the 7½% notes due 2021 slipped half a point to 63 7/8.

Another market source deemed the latter issue off 1½ points at 63¾ bid.

And, Samson Investments Co.’s 9¾% notes due 2020 declined almost a deuce to 30, according to a trader.

Iron, coal take dip

Citigroup cuts its price forecasts for the iron and coal sectors on Wednesday, putting pressure on debt in those areas.

“These bonds are all going to zero, these coal bonds,” a trader said.

A trader said Cliffs Natural Resources’ 6¼% notes due 2040 dropped 2½ points to 62½. But the 3.95% notes due 2018 finished up 1½ points at 78, he said.

In the coal arena, Alpha Natural Resources’ 6% notes due 2019 were called over 2 points softer at 26¾, while the 7½% notes due 2020 finished at 52¼, down “7 points from a couple days ago.”

Another source saw the 6¼% notes due 2021 losing 2¼ points to 27 bid.

Along with the forecast cut, Alpha Natural was also dealing with fallout from news out Tuesday regarding Paul Vining, president of the company.

Vining will be leaving the coal producer as of Jan. 31.

Among other coal companies, a trader saw Arch Coal Inc.’s 7¼% notes due 2021 falling 2½ points to 25¼.

Walter Energy Inc. was also weaker, the 8½% notes due 2021 at 15½ and the 9 7/8% notes due 2020 at 16.

The latter issue was down 3 points, the trader said.

In a research note published Wednesday, Citigroup analyst Ivan Szpakowski suggested that iron ore will see an average price per metric ton of $58 in 2015.

He posited that the price will improve to $62 per ton in 2016.

However, both prices were down from previous estimates of $65.

As for coking and thermal coal, those prices could decline as much as 18%.

Ocwen pushed lower

There was more pressure on Ocwen Financial’s 6 5/8% notes due 2019 on Wednesday as investors reacted to news that the company might have its mortgage license suspended in California.

However, the bonds were not down nearly as much as they were in the previous session, when they were seen declining 10-plus points.

One trader said the debt ended the midweek session at 79¼, down almost 4 points. Another source pegged the notes at 79¾, down from 82½ at the day’s open.

The company’s term loan dropped to 92 bid, 93 offered from 93¼ bid, 94¼ offered.

On Tuesday, it was reported that California’s Department of Business Oversight (DBO) was taking measures to suspend the company’s mortgage license, given that the company had failed on numerous occasions to supply the agency with documents pertaining to its compliance with the state’s Homeowners Bill of Rights.

An administrative settlement hearing will be held in February. A hearing on the license suspension has been scheduled for July.

Ocwen said it is cooperating with the DBO and believes the situation will be resolved.

For its part, Altisource Portfolio Solutions SA – which receives about 60% of its revenues from its business connection with Ocwen – has scheduled an 11 a.m. ET conference call for Friday “to discuss recent events and strategy,” according to a press release.

On Wednesday, Moody’s Investors Service took action, cutting ratings on Ocwen, Altisource and Home Loan Servicing Ltd., an entity that has acquired nearly all of its assets from Ocwen.

Sara Rosenberg contributed to this article

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