‘Better buyers’ seen entering distressed space; Oasis bonds firm on capital increase; Freeport falls

By Stephanie N. Rotondo

Seattle, Jan. 28 – The distressed debt market experienced a “bounce-back” on Thursday, according to one trader.

“It certainly felt like guys were generally better buyers,” he said.

That was helping recently notable names such as Sprint Corp. move upward.

A trader saw Sprint’s 7% notes due 2020 rising over a point to 72½.

“Sprint was better by another point or so,” a second trader said.

Even United States Steel Corp. paper was improving, as a trader deemed the 7% notes due 2018 “up a few points,” trading in a 61 to 62 context.

That compared to levels in a 57 to 59 zip code on Wednesday.

Another market source placed the issue at 63 bid, up 3½ points.

U.S. Steel bonds had declined on Wednesday after the steelmaker reported disappointing earnings.

In the energy space, bonds were trending higher as oil prices improved on chatter of OPEC production cuts. But none were as better than Oasis Petroleum Inc., which said that it had raised $160 million via an offering of common stock.

Those bonds were 3 to 5 points better at Thursday’s bell.

While the market overall was in a more positive place, Freeport-McMoran Inc.’s debt was decidedly not.

A trader said the name was “very active” following the “significant” downgrade from Moody’s Investors Service on Wednesday. The rating curb came on the heels of the metals and mining company’s earnings release on Tuesday.

Oasis up on capital raise

Houston-based oil and gas producer Oasis Petroleum said early Thursday that it had priced a sale of common stock, resulting in proceeds of about $160 million.

Proceeds from the offering will be used for general corporate purposes, but more specifically, to fund the company’s already-reduced capital expenditure program for the year.

Debt investors reacted positively to the news, though stock players did not.

One bond trader said the name was active on the day, seeing the 6 7/8% notes due 2022 gaining 3½ points to close at 57. The 6½% notes due 2021 were meantime nearly 6 points higher at 60, the trader said.

At another desk, a trader said the 2022 paper was “all over the place,” gyrating in a range of 56 to 59. The notes even hit as high as 60, he said.

The trader noted that the debt was up a few points from Wednesday’s close around 54.

As for the equity (NYSE: OAS), it dropped 53 cents, or 9.96%, to $4.79. That decline was due to investors’ concerns about dilution upon the sale of an additional 34 million shares.

Oil and gas space boosted

Domestic crude prices were popping Thursday as Saudi Arabia indicated it was willing to talk about cutting production amid a supply glut that has weighed on prices for over a year.

West Texas Intermediate crude improved by 3.78% to close at $33.52 a barrel. That was down from intraday highs, but still well up for the day.

Thursday’s oil gain marked the third straight day of upward momentum for the commodity.

In response, names like Breitburn Energy Partners LP were moving up. The 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) were up $1.45, or 22.17%, at $7.99.

Vanguard Natural Resources LLC’s 7.875% series A cumulative redeemable preferred units (Nasdaq: VNRAP) were also better, rising $1.24, or 15.74%, to $9.12.

And in Legacy Reserves LP, the 8% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) firmed by 38 cents, or 13.72%, to $3.15.

Freeport falls

Freeport-McMoran debt took a beating Thursday as the market reacted to a slug of not-so-stellar news on the Phoenix-based mining company.

At one shop, a trader said about $50 million of the 4.55% notes due 2024 were exchanged during the session, falling 5 points to 39¾. The 2 3/8% notes due 2018 dipped 1½ points to 63, as the 3 3/8% notes due 2023 weakened over 3 points to 39¾.

The 3.1% notes due 2020 declined almost 4 points to 46½, the trader said.

“Those bonds were active,” another trader said, calling the bonds off 3 to 4 points on the day. He pegged the 2024 paper at 40 and the 2018 notes at 62½.

The trader also saw the 2.3% notes due 2017 dropping to 68 from 72 previously.

On Wednesday, Moody’s cut its senior unsecured ratings on Freeport to Ba from Baa3. The rating agency noted that the change was due to concerns about the company’s level of debt protection, especially considering the decline of copper prices in the last year.

“While Moody’s downgrade [of Freeport bonds] to below investment grade shouldn’t come as a surprise, the order of the magnitude was more than we had anticipated,” wrote Gimme Credit LLC analyst Even Mann in an afternoon comment published Thursday. Mann noted that the revision took the rating down four notches and that the outlook remained negative – meaning more downgrades could come in the near-term.

Moody’s rating alteration came on the heels of Freeport’s quarterly results, which were announced Tuesday. For the quarter, net loss was $4.1 billion, or $3.47 per share. For the fiscal year, net loss came to $12.2 billion, or $11.31 per share.

Operating cash flows for the quarter were $612 million and $3.2 billion for the full year.

Fourth-quarter capital expenditures totaled $1.3 billion and $6.35 billion for 2015. Capital expenditures are expected to be about $3.4 billion for 2016.

During a conference call to discuss the results, management said it was considering alternatives to asset sales, including the possibility of entering joint ventures. Furthermore, it had engaged Lazard to review the company’s oil and gas unit.

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