Oil and gas bonds ‘volatile’ as crude gyrates; Teck up on streaming deal; Bombardier down

By Stephanie N. Rotondo

Phoenix, Oct. 7 – It was a day of big moves in the distressed debt market, with most toward the higher side.

Oil and gas bonds in particular were buzzing given an early rally in domestic crude oil prices. The commodity was gaining on expectations that fresh data from the U.S. Energy Information Administration would show stockpiles declining and production slowing.

However, the latest weekly report showed a higher-than-expected addition to inventories and an unexpected increase in production. Oil prices then reversed course, ultimately ending down nearly 1% on the day.

Still, the bonds of distressed oil and gas producers were on the rise.

“It’s all these E&Ps that are heavily shorted,” a trader said, adding that most were “up more intraday,” but gave back a portion of the gains.

Meanwhile, Teck Resources Ltd. paper got a boost on news the company had inked a “streaming” deal for one of its Peruvian mines. Bonds were up 3 to 4 points, according to market sources.

Alas, not every name was moving up.

Bombardier Inc. bonds were coming in after it was reported that talks with Airbus were a no-go. The headlines weren’t all bad, however, as Quebec’s economy minister hinted that a foreign investor in the aircraft manufacturer would not be unwelcome.

Volatile day for oil, gas

Domestic crude oil prices hit nearly $50 a barrel in early midweek trading as the market expected new data to show a decline in both inventories and production.

However, that rally was reversed after the EIA’s latest report showed an uptick in stockpiles and production.

For Energy XXI Ltd. paper, that meant that trades were “all over the place,” according to a trader.

The trader said the 11% notes due 2020 were around 54 bid early in the day and traded all the way up to around 60. But by the bell, the paper had come back to settle with a 53 handle.

That was still up about a point on the day, the trader said, adding that the issue was “heavily traded.”

Another trader said the issue was “volatile,” trading up to 59½ before settling back to around 55.

California Resources Corp.’s 6% notes due 2024 meantime rose a deuce to 66¼.

Chesapeake Energy Corp. was also up smartly as a trader pegged the 5¾% notes due 2023 at 70.

He called that a gain of more than 3 points.

The trader also saw the 6 5/8% notes due 2020 adding 2 points to close at 75½.

At another desk, Chesapeake’s 6 5/8% notes were pegged at 75¼ bid, up nearly 2 points.

In SandRidge Energy Inc., a trader said the 7½% notes due 2021 “bounced” up 3½ points to 26. A second source placed that issue at 24¾, up 3 points.

Last week, U.S. crude and petroleum stockpiles rose 2.3 million barrels, bringing the grand total to 1.3 billion barrels in inventory.

That was the highest level seen since 1990.

Additionally, output per day was seen rising to 9.2 million barrels from 9 million barrels.

Teck paper rises

Teck Resources, the Canadian diversified mining company, said it had reached a so-called “streaming” deal with Franco-Nevada Corp. on Wednesday.

Under the terms of the deal, Franco-Nevada will pay $610 million to help fund operations at Teck’s Antamina mine in Peru. In exchange, Teck will give Franco-Nevada a portion of future production at 5% of the silver spot price per ounce.

On the news, the company’s bonds popped.

A trader saw the 3¾% notes due 2023 rising 4 points to 64½, as the 5.2% notes due 2042 gained 3 points to close at 56.

Bombardier drops

Bombardier bonds took a downward turn Wednesday as the market reacted to news regarding the company’s talks with Airbus.

A trader said the 7½% notes due 2025 fell nearly 3½ points to 78 1/8 as the 6 1/8% notes due 2023 declined more than 2 points to 78¾.

On Tuesday, Reuters reported that Bombardier was hoping to get Airbus to take a majority stake in its flailing CSeries jetliner project. In response, Airbus issued a statement that said negotiations had occurred but that no deal was reached.

That doesn’t bode well for the Montreal-based company, which has struggled to get its latest aircraft up and running. However, Quebec’s Economy Minister, Jacques Daoust, indicated that bringing in a potential investor – a foreign investor, at that – would not be unthinkable. If the governmental hurdles can easily be overcome, it might give the company the breathing room it needs to wrap up its project.

Broad market tidbits

Elsewhere in the market, a trader said there was “heavy volume” in Intelsat SA’s 7¾% notes due 2021, which he saw rising a point to 67¾.

There was no fresh news out on the commercial satellite systems company, but a second trader said that the name “rallied with everything else.”

“It hasn’t been participating in the past few days, so it eventually caught up,” the trader said.

Meanwhile, Tronox Ltd.’s7½% notes due 2022 were seen jumping 5 points to 64. However, a trader said sector peer Chemours was drifting down to the mid-60s.

Fannie, Freddie busy

Fannie Mae and Freddie Mac preferreds continued to be actively traded on Wednesday.

“There was decent trading in GSEs,” a market source said, noting that there was no fresh news out, just a continuation of news that was reported on Tuesday.

Fannie’s 8¼% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) moved up 7 cents, or 1.38%, to $5.15. However, Freddie’s 8 3/8% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were steady at $5.12.

On Tuesday, senators Bob Corker and Mark Warner spoke at a Bipartisan Policy Center event on housing reform. Both are sponsors of a bill that would hasten housing reform and move Fannie and Freddie out from under government conservatorship.

But that bill has been stalled – several times – and Corker and Warner have been pleading their case as to why Congress needs to act faster. In addition to the Tuesday event, Corker was on CNBC on Wednesday.

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