ResCap, Chesapeake bounce off Monday lows; ATP oil slides again, Patriot gets pounded

By Paul Deckelman

New York, May 15- Residential Capital LLC's bonds were seen by distressed-market sources to have firmed solidly Tuesday in heavy trading - quite a switch from Monday, when the beleaguered mortgage provider's bonds had slid by several points, also in active dealings, following its Chapter 11 filing.

That was also the case Tuesday for Chesapeake Energy Corp., whose bonds got battered on Monday in very heavy trading as market players tried to sort out what the news of a new term loan might mean for the embattled natural gas producer. On Tuesday, those bonds were again the busiest junk credit - but were up on the session pretty much across the board, even as that new loan - now upsized to $4 billion - priced in the bank debt market.

However, it was more of the same old, same old for ATP Oil & Gas Corp., whose bonds again traded heavily, but unlike ResCap or Chesapeake, showed no improvement on Tuesday; in fact, they got hammered for a fourth straight session in apparent response to last week's poor earnings announcement.

Elsewhere, Patriot Coal Corp.'s junk bonds and convertible notes each took a nosedive, swooning after the company cut its outlook for sales of metallurgical coal, one of its most important products. Adding to the angst was market buzz that it had decided to scrap a proposed credit facility that would have been used to fund the takeout of an issue of its convertibles.

As if in sector sympathy, the battered convertible paper of Patriot peer James River Coal Co. was seen down by several points.

ResCap rebounds

As was the case on Monday, Chesapeake's bonds dominated the most-actives list; one of the few non-Chesapeake credits in the Top Ten was Residential Capital LLC's 9 5/8% notes due 2015, which had fallen badly on Monday following the news of the Minneapolis-based mortgage lender's bankruptcy filing. The securities were off about 4 or 5 points that session.

ResCap regained some of that lost ground on Tuesday, with a trader calling the bonds 21/2-point gainers, up to the 96½ level.

However, later in the session, another trader said the bonds were up by perhaps 1 point, pegging them at 95 bid. Over $50 million of those bonds changed hands on Tuesday, one of the day's most active junk issues.

While ResCap's bonds were rising, those of its corporate parent, Detroit-based automotive lender and bank operator Ally Financial Inc. were headed in the opposite direction, though on far less volume.

A market source saw Ally's 8% notes due 2031 down ¾ point at 116½ bid, on volume of $10 million.

At another desk, the bonds were quoted at 117 bid, down 2 points on the day.

Ally executives held a conference call on Tuesday in which they explained the company's support for its star-crossed unit's bankruptcy filing, and outlined the expected benefits of ResCap's expected sale of much of its mortgage business and Ally's own planned sale of its non-U.S. operations (see related story elsewhere in this issue).

Chesapeake churns higher

Another recently troubled name seen on the rebound on Tuesday was Chesapeake Energy.

One trader said that "today's action [in the high-yield market] was all about the [new-issue] calendar and Chesapeake."

He estimated that the Oklahoma City-based Number-2 U.S. natural gas producer's short-end bonds were up about a point and the longer end by 2 or 3 points.

"They bounced around and traded up today," another trader said, quoting the company's 7 5/8% notes due 2013 up by perhaps ¼ point at 100½ bid.

Those bonds were one of the most heavily traded issues on Tuesday in Junkbondland, with over $53 million having changed hands.

The trader saw Chesapeake's 6.775% notes due 2019 at 93½ bid, calling that up a point on the session.

A market source at another desk estimated the bonds up as much as 1½ points on the day, ending at 94 bid, after having gotten as good as 941/2, a 2-point intraday gain. Over $58 million of the '19s traded, topping the high-yield most-actives list.

A trader saw Chesapeake's 6 1/8% at 91¼ bid, up ¾ point, with over $33 million of those bonds moved.

Chesapeake's 9½% notes due 2015 gained 1 3/8 points, closing at 104 1/8 bid, after having gotten as high as above the 105 mark. Some $27 million of those bonds changed hands, although was something of a letdown after Monday, when volume rocketed up to $118 million, tops in the high-yield world.

Chesapeake's 6 5/8% notes due 2020 gained 1½ points to end at 93½ bid on volume of over $43 million -pretty busy, but still much calmer than Monday, when over $105 million of those bonds traded.

The bonds had fallen Monday amid investor uncertainty about the company's plans for continuing its ambitious slate of asset sales needed to provide liquidity. Company executives sought to allay market fears with a conference call on which they said liquidity would remain solid, especially with a new $3 billion term loan. That loan was upsized to $4 billion on Tuesday, was priced and began trading in the bank loan market.

Chesapeake loan launches

Chesapeake launched that unsecured loan due 2017 on Monday, without the benefit of a bank meeting; since then, demand among investors has been so strong that the deal was upsized to $4 billion from $3 billion and the original issue discount was revised to 97 from 96, according to a market source.

Pricing on the loan through Dec. 31 is Libor plus 700 bps with a 1.5% Libor floor. The spread will increase to Libor plus 800 bps if, prior to Jan. 1, 2013, the company uses proceeds from certain asset sales or financing transaction to repay revolver debt and to Libor plus 1,000 bps if any amounts remain outstanding after Jan. 1, 2013. And, beginning on May 11, 2013, lenders have the option to exchange their loans for 11½% fixed-rate notes.

Goldman Sachs & Co. and Jefferies Finance LLC are leading the deal that funded on Friday.

With the terms of its big borrowing finalized, the new Chesapeake term loan made its way into the secondary market, with levels quoted at 98 bid, 98½ offered on the break; then it moved up to 98¾ bid, 99¼ offered, a trader remarked.

Proceeds from the loan are being used to pay down revolver borrowings.

The company hopes to refinance the new term loan in the near term with proceeds from contemplated asset sales, which all in all, are expected to total $9 billion to $11.5 billion this year.

Strong interest for its Permian Basin asset sales process and its Mississippi Lime joint venture process has been received and the target is to close on the transactions in the third quarter, the company disclosed in a recent regulatory filing.

ATP remains awful

For a fourth straight session, ATP Oil & Gas' bonds were both big traders and big losers, high up on the most actives list even as the Houston-based offshore energy exploration and production operator's 11 7/8% senior secured second-lien notes due 2015 continued to move lower, price-wise.

A trader saw those bonds fall to 61 7/8 bid, well down from levels above 64 at which the bonds had finally finished on Monday, after being battered over the previous several sessions on disappointing earnings. Over $34 million of the bonds were seen having traded.

"They're down again," another trader said, noting that the bonds had traded over the past week in a 60 to 75 range, but now, after four days of earnings-related carnage "they're awfully close to 60."

The bonds have backtracked since the company released its first quarter results after the financial markets closed last Wednesday, followed by a Thursday conference call.

In the latest period, ended March 31, ATP recorded a net loss attributable to common shareholders of $145.1 million or $2.83 per basic and diluted share - wider than the $119.5 million or $2.34 per basic and diluted share of red ink seen a year ago, in the 2011 first quarter.

Revenue of $146.6 million fell well short, by $32 million, of Wall Street expectations.

Patriot gets punished

Elsewhere, a junk bond trader saw Patriot Coal Corp.'s 8¼% notes due 2018 get buried on Tuesday, quoting the St. Louis-based mining concern's bonds fall 8 points on the session, down to a 66-68 context.

However, he cautioned that while the bonds took an ugly slide from prior levels around 75 "it was just small trades and not a lot of them - maybe not even more than a half-dozen" such transactions.

The company also saw its convertibles drop sharply to about 94 from 99.5 after the coal producer cut its outlook for metallurgical, or steelmaking, coal sales, and word circulated that the company had pulled its senior secured credit facility, the proceeds of which had been earmarked to fund repurchase of Patriot's $200 million of 3.25% convertibles due this month next year.

The facility was supposed to launch with a bank meeting on Tuesday afternoon, but a bank-debt market source said that Patriot had decided not to move forward with that meeting; the source cited the fact that the company is facing a potential default by a key customer that would result in a downturn in sales and Appalachia-met coal prices.

The now-postponed facility consisted of a $250 million revolver due June 30, 2016 and a $375 million second-lien term loan due Dec. 31, 2017.

"Clearly people are nervous," a New York-based convertibles strategist said. "Basically the money was there specifically for the refunding of the bonds."

Other convertible coal names meantime also came in the cross hairs of investors. James River Coal Co.'s 4.5% convertibles due 2015 traded down to 42.125 from 44 earlier in the session. And Alpha Natural Resources Inc.'s 2.375% convertibles due 2015 traded in the context of 89 bid, 90 offered, which was pretty much where that yield play has been.

SuperMedia slides again

Away from the energy patch, a trader in the bank-loan market said that SuperMedia's term loan dropped to 57¼ bid, 58¼ offered from 57½ bid, 58½ offered Tuesday as the buyback offer for its term loan debt wrapped, with the result being that the Dallas-based directory publisher will use $33 million in cash to purchase about $55.9 million of the debt, according to a trader.

The repurchase price is at a discount of 59, the high end of the 55 to 59 talk.

The offer expired at 5 p.m. ET on Monday, and the prepayments are expected to be settled on Wednesday.

JPMorgan Chase Bank is the administrative agent on the deal.

Rebecca Melvin and Sara Rosenberg contributed to this report

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