Patriot Coal, James River get 'rocked'; ATP Oil, Edison feel the burn; bonds generally weaker

By Stephanie N. Rotondo

Portland, Ore., May 23 - There was an "afternoon swoon" in distressed debt Wednesday, a trader reported.

"There was not a ton of volume, but a lot of stuff was weaker," he said.

Energy names in particular were on the decline.

"The coal sector is getting rocked," one trader noted, as names like Patriot Coal Corp. - which was downgraded during the session - and James River Coal Corp. continued to weaken.

"Oil and energy started to get hit," said another trader, with credits like ATP Oil & Gas Corp. and Edison International Inc. succumbing to pressure.

Coal names drop further

Patriot Coal's woes continued in Wednesday trading, as Standard & Poor's downgraded the St. Louis-based coal producer and Moody's Investors Service said it was considering a rating cut.

One trader said there was "a fair amount of trading" in the 8¼% notes due 2018, which he called down half a point at 46½ bid, 47½ offered. Another trader pegged the paper at 47 bid, 48 offered, while a third source saw the notes falling a point to 47 bid.

On Tuesday, Patriot said that it was continuing to work with lenders in an effort to secure a $625 million credit facility ahead of its March 2013 debt maturities. Investors have grown concerned that the deal might not go through and further reports that indicated the company was seeking restructuring advisors did little to help.

The bonds dropped as much as 14 points in Tuesday trading.

Come Wednesday, S&P said it had lowered its corporate credit rating to CCC from B-, citing uncertainty about its ability to secure the financing.

Moody's meantime said it was reviewing patriot's rating, also noting concerns about the financing.

Patriot has not been the only coal producer to see declines recently, given broader concerns about the sector at large. One trader said James River Coal's 7 7/8% notes due 2019 have "really come in," placing the debt at 53 ½ bid, 54 offered, down from recent levels around 67.

"Based on what [Patriot] was doing [Tuesday], they got pulled down in the downdraft," another trader said of James River's bonds. He noted that while the paper "hasn't traded much recently," it was down "half a dozen points" from previously quoted levels.

He said markets were around 53½ bid, 54 offered, down from 62 offered the day before.

"That's a good bit lower," he said.

Also feeling the pain was Alpha Natural Resources Inc.'s 6¼% notes due 2021, which lost a point to end at 88½ bid.

ATP, Edison decline

Also in the energy realm, names like ATP Oil & Gas and Edison International were not faring well.

"ATP got smoked again," a trader said, seeing the 11 7/8% notes due 2015 trading down to 501/2. However, he added, "There were a couple bids filling in later in the day."

Edison's Edison Mission Energy-linked 7% notes due 2017 were also called softer, dropping a point to 581/2.

Both ATP and Edison have there own internal issues that they are dealing with, but declining oil prices are not helping, a trader noted.

"Oil falls, natural gas gets hit, coal gets hit," he said.

The price per barrel of U.S. crude dropped $1.29, or 1.4%, to $90.56.

Also in the space, Petroleos de Venezuela SA's 9% notes due 2021 were "again at the top of the charts," on volume of over $40 million, according to a trader. He said the bonds "came up off the bottom," ending at 73 bid, 74 offered.

Still, the trader noted that the levels were down 1½ points day over day.

Bonds generally lower

In the rest of the distressed arena, Ahern Rentals Inc.'s 9¼% notes due 2013 were seen trading around 67, according to a trader.

"I think that's down from where they [previously] were quoted," he said.

The trader also called Eastman Kodak Co. paper "very active," seeing the 7¼% notes due 2013 hanging in around 14, though the second-lien issues dropped to 68½ from previous levels around 70.

NewPage Corp.'s 11 7/8% first-lien notes due 2014 were steady around 63, but Dex One Corp.'s 12% PIK notes due 2017 fell to 25.

Paul Deckelman contributed to this article

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