SandRidge, Energy XXI improve ahead of earnings; Magnetation trading flat on Chapter 11 filing

By Stephanie N. Rotondo

Phoenix, May 5 – The distressed debt market held in during Tuesday trading, though the broader markets were in sell-off mode.

Treasuries and stocks were coming in as investors reacted poorly to weak first quarter GDP data.

Distressed investors remained focused on commodities, especially those that are slated to bring earnings later in the week.

Take, for instance, SandRidge Energy Inc., which will put out its earnings after the market closes on Wednesday. Market sources saw that company’s debt rising ahead of the numbers.

One trader said SandRidge’s 7½% notes due 2023 closed up a deuce at 70¾. At another shop, the 7½% notes due 2021 were seen up a similar amount at 73¼ bid.

Energy XXI is also scheduled to release earnings, expected on Thursday. That paper was also moving higher on the day.

A trader pegged the 6 7/8% notes due 2024 at 41 3/8, deeming that up 1½ points. The 7½% notes due 2021 improved a like amount to 43½.

The 7¾% notes due 2019 meantime rose half a point to 50.

The bonds might have also been benefiting from a rally in oil prices. West Texas Intermediate crude jumped $1.81, or 3.07%, to $60.74 per barrel. Brent crude finished $1.21, or 1.82%, higher at $67.66.

The gains were attributed to protests at Libya’s eastern port that blocked any oil tankers from leaving, as well as word that Saudi Arabia has increased the price of Arab light grade crude to U.S. and Northwest European customers.

Magnetation enters bankruptcy

Magnetation LLC’s 11% notes due 2018 began trading flat, or without accrued interest, on Tuesday after the company said it had filed for Chapter 11 protections.

A trader said the debt rose to levels in the mid-30s, though he noted that there was “not a lot of volume.”

The Grand Rapids, Minn.-based iron ore concentrate and pellet producer said in a press release that it had reached a restructuring agreement with over 70% of noteholders. Under the agreement, the company will ink a couple new first-lien term loans, one of which some of the outstanding notes will be rolled into.

For those holders whose bonds are not rolled up, they will receive new 5% second-lien PIK notes in the amount of $232.5 million plus accrued interest.

Additionally, Magnetation will issue new 5% convertible preferred stock, 90% of which will go to bondholders.

Magnetation is a joint venture between Magnetation Inc. and AK Steel Corp. Last week, it was reported that AK Steel took a large writedown on its stake in the form of an impairment charge.

Freddie, Fannie fall

Freddie Mac reported earnings Tuesday and despite a wider profit, the agency’s preferreds – as well as those of Fannie Mae – were drifting lower.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) ended 8 cents, or 1.6%, weaker at $4.92. Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were down 7 cents, or 1.4%, at $4.93.

Of the two issues, the Fannie paper traded much more actively, with well over 2 million shares being exchanged.

For the first quarter of 2015, Freddie posted net profit of $524 million, up from $227 million the year before.

That being said, the mortgage giant also noted that it would be sending a smaller check back to taxpayers – about $747 million. Once that payment is made, Freddie will have made $92.6 billion in cumulative dividend payments to the Treasury, after receiving $71.3 billion in bailout funding at the height of the financial crisis.

Also on Tuesday, the FHFA announced that it was submitting a proposal to the GSEs board to increase the salaries of its CEOs.

The proposal is being made despite objections from the Treasury, the White House and other lawmakers.

The FHFA hopes the pay increase would help the GSEs retain talent, while also attracting new blood, should the need arise.

The top executives’ pay was slashed in 2012 to $600,000 per year after lawmakers expressed concerns about management’s multi-million dollar wages.

The new proposed pay structure could not be higher than the 25th percentile of comparable companies and also could not include a bonus.

But the FHFA could be fighting an uphill battle, as the pay proposal comes on the heels of last week’s stress test results. Those results indicated that in the event of a severe financial downturn, Fannie and Freddie would need up to $157.3 billion in new bailout funding.

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