Distressed investors eye oil, gas names as oil drops further; Fannie, Freddie preferreds weaken

By Stephanie N. Rotondo

Phoenix, Jan. 5 – The distressed oil and gas space was under pressure Monday, as oil prices hit new recent lows.

“They are getting clobbered again,” a trader said.

West Texas Intermediate crude oil declined $2.78, or 5.28%, to $49.91, while Brent crude lost $3.44, or 6.15%, ending at $52.98.

Of the names in that sector, a trader said Forest Oil Corp.’s 7¼% notes due 2019 fell “another 2 points” in the last week, trading around 3¼. He noted that the paper has lost about 50 points since early December, when the company said it had reconfigured the terms of its merger with Sabine Oil & Gas LLC so that a change of control would not be triggered.

That meant bondholders lost out on a redemption of their holdings at 101% of par.

Another trader also saw the issue at 35¼ in Monday trading.

“That one continues to drift lower,” he said.

Meanwhile, independent producer Samson Investments Co. saw its 9¾% notes due 2020 losing “almost 2½ points,” a trader said, to close at 38¾.

The trader also said that Midstates Petroleum’s 9¼% notes due 2021 ended down 2½ points at 47¼.

At another desk, SandRidge Energy Inc.’s 7½% notes due 2021 were pegged at 61 bid, off over 3 points, while Linn Energy LLC’s 7¾% notes due 2021 were seen at 85 bid, down 1½ points.

Overall, market sources reported a muted session following the recent slew of holidays.

“A lot of people are getting back from long breaks,” one trader noted. “And they are keeping their head down given the way the tape looked.”

Housing speech on tap

President Barack Obama is slated to give a speech in Phoenix on Thursday and is expected to discuss housing reform.

Given such, the market is looking to see how Obama approaches his comments in regards to Fannie Mae and Freddie Mac. If he does not make note of any housing reform proposals, that could indicate he is stepping away from his push to wind down the government-sponsored entities, according to a research report published by Keefe, Bruyette & Woods.

In that instance, Fannie and Freddie’s preferreds could get a boost, the analysts opined.

But in Monday trading, the issues were trending lower with the overall market.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) fell a penny to $4.11, while Freddie’s fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) lost the same amount, closing at $4.09.

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