PDVSA debt rallies as Barclays deems it a good bet; distressed sector subdued ahead of holiday

By Stephanie N. Rotondo

Phoenix, Oct. 5 - The distressed bond market was benefited from a broad market "bounce," a trader said Friday, though activity in the space continued to be subdued.

"There's still a focus on new issues," the trader said. He added that there was "not a lot of volume going into this long holiday weekend."

Petroleos de Venezuela SA was among the day's biggest upside movers, according to a trader. The gains came as polls showed current Venezuelan president Hugo Chavez could lose in the country's upcoming election. Given that scenario, Barclays analysts were recommending investors buy the state-owned oil company's debt.

Away from PDVSA, there was "not too much in the way of notables," a trader said.

PDVSA bonds rally

It continued to be the PDVSA show in the distressed realm as new polls showed current Venezuelan president Chavez might lose to Henrique Capriles Radonski.

A trader saw the bonds gaining as much as 1¾ points on the day. The 8½% notes due 2017 moved up a point to 90¾ and the 5 3/8% notes due 2027 were likewise a point better at 631/4.

Both the 9¾% notes due 2035 and the 5½% notes due 2037 inched up three-quarters of a point to 85 5/8 and 621/4, respectively.

Up 1 3/8 points were the 5½% note due 2017, which ended around 791/2.

And, the 9% notes due 2021 rose 1¾ points to 851/2.

A new poll by Consultores 21 indicated that Radonski was widening his lead, showing a 5-point gap between him and incumbent Chavez.

"Taking into account the Consultores 21 poll and Mr. Capriles' momentum, an opposition victory looks likely," Barclays analysts Alejandro Arreaza and Alejandro Grisanti wrote in a research note published Friday. "An opposition victory could be a positive surprise for the market that could push Venezuelan assets to levels not seen in the past five years."

Barclays recommended investors buy the bonds now.

Radonski has been seizing on opportunities to decry Chavez's economic policies, which have failed to shore up food shortages and inflation.

If Radonski were to win, he also plans to look more closely at PDVSA. He wants to de-politicize the company by removing its current head. He also claims that he will go over current contracts with vendors and partners in order to help bring in more revenues to the oil company.

Currently, Chavez uses a fair portion of PDVSA's revenues to prop up social programs. This has meant the company has had little left over to reinvest in itself, which has resulted in production and construction delays.

Exide, Kodak inch up

Elsewhere in distressed debt, a trader said Exide Technologies Inc.'s 8 5/8% notes due 2018 were higher, trading around 88.

The trader also saw Eastman Kodak Co.'s 9¾% second-lien notes due 2018 "rebounding from the lows." He said paper had been trading in a 61-62 context, but that it crept back up to 62 bid, 62½ offered.

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