Oil price rally helps sector climb; Chemours, Tronox active as Apollo considers buyout

By Stephanie N. Rotondo

Phoenix, Oct. 8 – It was another up day for the distressed bond market on Thursday.

Oil and gas names remained actively traded and stronger, helped in part by another rise in domestic crude oil prices. Prices improved nearly 4% on the day, settling at a three-month high after Chinese stocks rallied and airstrikes in Syria prompted geopolitical concerns about the oil-producing area.

Chemours Co. paper was also active, but weaker following a verdict issued Wednesday in regards to a toxic dumping lawsuit brought against the company’s former parent DuPont. Sector peer Tronox Ltd., however, was moving up on reports private equity investor Apollo Global Management LLC was considering a takeover offer for Chemours and potentially other titanium dioxide producers, such as Tronox.

There was also news about Caesars Entertainment Corp. and its bankrupt unit, Caesars Entertainment Operating Co. The opco filed an amended reorganization plan on Thursday, and later in the day it was announced that the unit could not stop creditors from going after the parent company for unpaid debts.

Oil, gas sector rises

A trader said oil and gas producer SandRidge Energy Inc. was active and higher on Thursday on news the company had wrapped a debt repurchase and exchange.

The trader said the 8¾% notes due 2020 rose to 67 from opening levels in a 64 to 65 context.

Another market source pegged the 7½% notes due 2021 at 27 bid, up a point.

SandRidge said Thursday that it had bought back $100 million of senior notes for $30 million. Additionally, it exchanged $300 million of bonds for new convertible notes.

On that news, Standard & Poor’s changed its rating on the company to SD from CCC+, deeming the debt reduction measures as distressed exchanges.

Such a move is typical when companies swap out debt at a discount.

Meanwhile, Energy XXI Ltd.’s 11% notes due 2020 were “active again,” according to a trader.

The trader said the paper “opened in the mid-50s and traded all the way up to 59.” The gain echoed the debt’s performance on Wednesday.

“They were pretty volatile yesterday,” the trader noted.

At another desk, a trader said Chesapeake Energy Corp. bonds were “pretty active,” seeing the 7¼% notes due 2018 moving up a point to 85 5/8. The 5 5/8% notes due 2020 were called nearly a point better at 76.

Apollo wants Chemours, Tronox

Chemours’ 6 5/8% notes due 2023 were another active issue, according to a trader.

The trader said there were a couple trades in the 70s early in the day but that the debt “pretty quickly traded down,” with most trades occurring in a 67 to 68 range.

“The 7% [notes due 2025) trade a little bit lower,” the trader added.

However, another trader deemed the 6 5/8% notes up half a point at 68 3/8.

Late Wednesday, a federal jury in Ohio handed down a $1.6 million verdict against DuPont – the former parent of Chemours – in a case regarding allegations that DuPont had dumped a toxic chemical known as C-8, a key ingredient in making Teflon coatings for cookware and other uses, into the Ohio River from one of its plants in West Virginia, causing a number of people to develop crippling illnesses. The case is one of about 3,500 similar cases filed against DuPont by people claiming to have been sickened by the chemical.

But while the case went against DuPont, it is Chemours that could eventually be forced to foot the bill, as it now owns the plant where the dumping allegedly took place.

There was, however, some news out Thursday that could be seen as positive for the chemical company.

Bloomberg reported that private equity firm Apollo was considering making an offer for Chemours in a move aimed at consolidating the titanium dioxide industry. Apollo then hopes to approach other makers of the chemical such as Tronox.

In response, Tronox bonds were trading better.

A trader said the 6 3/8% notes due 2020 moved up to 71 from 67. He also saw the 7½% notes due 2022 rising to 69, up from a 64 to 65 context previously.

Caesars files new plan

Casino operator Caesars saw its bonds improving as the bankrupt opco filed an amended reorganization plan.

One trader said the 11¼% notes due 2017 ended “a little better” at 81. A second trader called that issue up 4 points, also seeing the notes ending at 81.

The second trader also said the 9% notes due 2020 gained 2½ points to close at 82¼.

The amended plan – which is supported by senior creditors holding about $12 billion of the company’s $18 billion debtload – is similar to the original restructuring plan, in that it would separate the opco into two new companies – one company that operates the casinos and one that owns the real estate. But recoveries for creditors were boosted.

For instance, senior bondholders – with over $6.3 billion in claims – would receive $1.45 billion in cash, along with new debt and equity in the reorganized companies. Junior bondholders would get 17.5% of the new equity in the real estate investment trust – and possibly more if those holders agree to support the new plan. If those bondholders provide support, they will receive $450 million in convertible debt issued by the parent company, Caesars Entertainment.

But the parent company could be facing more troubles of its own. Late in the day, it was reported that an Illinois judge determined that neither the parent nor the opco could stop creditors from filing lawsuits against the parent over unpaid debts at the opco.

Fannie, Freddie abuzz

Fannie Mae and Freddie Mac preferreds again dominated overall trading on Thursday. A market source said that while there have been a lot of stories circulating as to why the shares have been trading so much, he said most of it was “a lot of posturing, with Fairholme and Ackman on the one side and the government, Treasury and the regulators that are all the other side of the equation.”

He further opined that it was the hedge funds that have been behind the recent spin.

Fannie’s 8¼% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) inched up a penny to $5.16, as the variable rate series O noncumulative preferreds (OTCBB: FNMFN) popped 40 cents, or 4.35%, to $9.60.

However, Freddie’s 8 3/8% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) continued to be steady at $5.12.

Earlier in Thursday’s session, a trader remarked that the GSE preferreds were “all up 20 cents across the board” on news that shareholders had hired a former Delaware judge to argue their case. Chatter is that the hiring could be positive, given that as a former judge, the new attorney has a wealth of Delaware business law knowledge.

Another source, however, said there wasn’t anything new to that story. But he did note that there has been speculation that Utah Rep. Jason Chaffetz – currently in the running for Speaker of the House – is pushing for the government to make all documents public related to the agencies.

“That could be a boost for the hedge funds or a killer,” the source said. It would seem, he added, that Chaffetz has been in talks with those funds that are suing the federal government over its conscription of a majority of the GSEs profits.

All the buzz has been interesting, the source said, given that “the word earlier [in the week] from [Sen. Bob] Corker was that nothing was getting done [on GSE reform] until after the elections.”

As the New York Post reported Thursday, an independent report from Political Alpha was released on Tuesday and indicated that the White House was considering flipping its position on how to handle the mortgage giants. Instead of liquidating them, the White House is supposedly looking into reviving them.

Corker addressed that report in a CNBC interview on Tuesday, deeming the notion as “major BS.”

Still, all the hubbub has been “keeping [Fannie and Freddie preferreds] actively trading,” the source conceded.

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