Tuesday August 25 Housing and Economic stories

TOP STORIES:

Big Natural Gas Driller Bites Dust, ‘Smart Money’ Gets Crushed - (www.wolfstreet.com)  Natural gas driller Samson Resources is planning to file for Chapter 11 bankruptcy by August 15, when a $110 million interest payment comes due on $2.25 billion of senior unsecured junk bonds, Bloomberg reported, citing “two people with knowledge of the matter.” Samson doesn’t have the money, can’t pay, and won’t pay. The 9.75% bonds maturing February 2020 aren’t traded anymore. The last trade was on July 29 for a quarter of a cent on the dollar. They’re part of the vast high-yield bond pile, and they have become worthless. These kinds of bonds are nicknamed “junk” for a reason. Stockholders – private equity firms, the ultimate “smart money” – are getting wiped out too. Samson was acquired in 2011 by a KKR-led group of private equity firms for $7.2 billion. They invested $4.1 billion of equity in the deal. Debt piled on the company made up the rest. Then Samson went on to drill this cash into the ground to produce lots of natural gas and sell it below cost, losing money all along. Now its cash is running out, and new cash to drill into the ground isn’t readily forthcoming.

Germany Views Third Greek Bailout Package as Insufficient-Bild - (www.reuters.com) Germany's government believes an agreement between Greece and its international lenders on a third bailout package is insufficient, Bild daily reported on Wednesday, citing EU sources. Several open questions remained, the paper said, including the role of the International Monetary Fund (IMF), debt sustainability and privatisation plans. "Some very important measures are still not yet implemented and are not specified," Bild quoted an analysis from Germany's finance ministry as saying.

Brazil’s Credit Rating Cut One Level by Moody’s to Cusp of Junk - (www.bloomberg.com) Moody’s Investors Service cut Brazil to the cusp of junk on Tuesday, and it was the first piece of good news investors had heard in a while. The company’s decision to assign a stable outlook to Brazil’s rating, now at the lowest level of investment grade, was welcomed by traders who had been widely anticipating a negative outlook. The real pared losses, futures on the Ibovespa stock gauge jumped higher, and local bonds gained. Brazilian assets sold off in recent weeks on speculation the country was veering closer to a junk rating after the government lowered its fiscal target amid the country’s worst recession in 25 years and a growing political crisis. While Moody’s says debt levels will keep rising to about 70 percent of gross domestic product by the end of President Dilma Rousseff’s term, a flexible exchange rate and plenty of reserves mean a cut to below investment grade isn’t imminent.

Currency Rout Goes Global as Jen Sees Risk of 50% Loss on China - (www.bloomberg.com) As bad as things are for emerging-market currencies, China is about to make them a whole lot worse. Its devaluation of the yuan risks a new round of competitive easing that may send currencies from Brazil's real to Indonesia's rupiah tumbling by an average 30 percent to 50 percent in the next nine months, according to investor and former International Monetary Fund economist Stephen Jen. Volatility measures were already signaling rising distress in emerging markets even before China's shock move. An index of anticipated price swings climbed above a rich-world gauge at the end of July, reversing the trend seen for most of the past six months. "If this is the beginning of a new phase in Beijing's currency policy, it would be the biggest development in the currency world this year,'' said Jen, founder of London-based hedge fund SLJ Macro Partners LLP. "The emerging-market currency weakening trend is now going global.''

Energy Junk-Bond Defaults Are Coming - (www.wolfstreet.com)  High yield bonds are signaling concerns about energy companies’ ability to pay back debt (since bonds lead stocks, we have to pay extra attention to them!). So far, defaults have been contained, and they need to stay that way for the US economic recovery to continue. The problem is debt issued by energy companies when oil prices were high and interest rates were super-low are coming due (Bloomberg wrote an interesting article about this back in December which you can read here). If oil prices remain low the weaker energy companies will most likely start to default. The fear is this could spread to other areas of the economy. And this is what energy junk bonds are doing now – they’re rolling over again, after the brief recovery from the crash late last year:

OTHER STORIES:

China Roils Markets for Second Day as Yuan Tumbles With Stocks - (www.bloomberg.com)
Yuan Tumble Tests China’s Free-Market Resolve as PBOC Intervenes - (www.bloomberg.com)
Europe Stocks Fall Most in Two Weeks as China Sparks Growth Fear - (www.bloomberg.com)
Ruble Drops to Six-Month Low as Sberbank Warns of China Risks - (www.bloomberg.com)

INSIGHT-China c.bank under pressure to weaken yuan further -sources
China’s Yuan Move Worsens Policy Bind for Asia’s Central Banks - (www.bloomberg.com)
Yuan Drops in ‘Vicious Cycle’; China's Central Bank Gives Market More Sway - (www.bloomberg.com)
Yuan Hurts Junk Bonds of China’s Builders With Most Dollar Debt - (www.bloomberg.com)
Exclusive-China Steel Exporters Cut Prices in Bid to Jump on Yuan Drop - (www.reuters.com)