PDVSA bonds jump as Chavez returns to Cuba for surgery; ATP gets lender waiver, pushes debt up

By Stephanie N. Rotondo

Phoenix, Dec. 10 - The December slowdown and another influx of new high-yield bond issues kept investors diverted from the distressed debt arena on Monday, according to traders.

"Most of the action is in new issue business," one trader said. Of secondary dealings, he said there were "no sellers of anything, buyers are limited and everything is so expensive."

Petroleos de Venezuela SA bonds were "wild," a trader said, as Venezuelan leader Hugo Chavez announced that he was headed to Cuba for another cancer surgery. Over the weekend, Chavez had also announced his desired successor to his seat, should his treatments fail and he be forced to step aside.

PDVSA's bonds jumped on the news, though they settled back in a bit, still ending higher on the day.

Among other oil producers, a trader said that ATP Oil & Gas Corp.'s debt was settling in after the company reached an agreement last week with its lenders. The agreement, which was approved by the judge overseeing the company's bankruptcy case, allows the company to continue funding itself via its debtor-in-possession facility, though lenders had been seeking to foreclose. Instead, ATP has agreed to entertain buyout offers while also creating a standalone reorganization plan.

Meanwhile, Edison Mission Energy's bonds were subdued in Monday trading, though the company's 30-day grace period is set to expire at the end of the week. According to one trader, the belief is that a "filing is imminent."

PDVSA spikes on Chavez news

PDVSA bonds rose sharply Monday, as investors wondered whether Venezuelan leader Hugo Chavez's health crisis could lead to a more business-friendly regime.

A trader noted that the name was "by far, the most widely traded" of the day.

The 8½% notes due 2017 moved up nearly 2 points to 99, while the 9% notes due 2021 put on 3 points to end around 97. The latter had hit par earlier in the day, but came back in a bit, still ending higher than Friday levels.

The 9¾% notes due 2035 meantime gained 5 points, closing with a 99 handle. The 5½% notes due 2037 increased about 3½ points to 713/4, as the 5 3/8% notes due 2027 earned about 1½ points to close at 711/2.

The 58-year-old Chavez went back to Cuba on Monday for another surgery to get rid of cancer. The trip has put Chavez's health back into question, as both his supporters and detractors ponder what it could mean for his presidency.

Chavez was reelected in October and is set to begin another six-year term in January.

Further increasing the "what if?" chatter was Chavez's announcement that he would like Nicolas Maduro, vice president and foreign minister, to succeed him should another election need to take place. However, the opposition to Chavez's Socialist party could also take advantage of a Chavez exit. The October election saw the Democratic Unity party's candidate, Henrique Capriles, take 44% of the total vote. From an investment standpoint, there is a belief that if the party were to take control, it might be more amenable to business and investments.

ATP settling in

ATP Oil & Gas has secured a waiver from its DIP lenders to continue funding itself and its projects.

The DIP lenders had been ready to foreclose on the company, stating concerns about assets and valuations. In securing the waiver, ATP has agreed in turn to entertain buyout offers.

Of the company's 11 7/8% notes due 2015, a trader said that "they have definitely settled in since the judge allowed the waiver on the DIP agreement," which occurred on Friday.

He said the paper was "firming," closing at 11 bid, 11½ offered. Earlier last week, the bonds had been trading in the single digits.

Edison filing 'imminent'

Trading in Edison Mission's debt was "quiet," a trader said Monday, placing the company's bonds in the 49½ range.

Another trader saw the 7¾% notes due 2016 trade at that level, deeming it down half a point to 1½ points from the previous week.

On Nov. 15, Edison Mission - a unit of Edison International Inc. - missed a $97 million interest payment, choosing instead to enter a 30-day grace period. With that period set to expire at the end of the week, a Chapter 11 filing seems a foregone conclusion.

"From a retail perspective, small pieces [of the company's debt] have been trading as if that is a known fact," a trader said. In his own opinion, he expressed doubts that the company would be able to cure the potential default in time.

Should Edison fail to make the payment in time, it would trigger the 2017, 2019 and 2027 maturities, becoming immediately due and payable.

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