Exide bonds fall after reorganization plan proposed; Puerto Rico G.O. bonds drop on downgrade

By Stephanie N. Rotondo

Phoenix, July 1 – The first trading day of July was a muted one for the distressed debt space, due in part to it being a short week and in part because of the World Cup match between the U.S. team and Belgium that started just as the market was closing.

When asked what was notable for the day, one trader quipped, “The score is tied 0-0.”

But as for the day’s dealings, Exide Technologies Inc. bonds were deemed “down a bunch,” though not overly active, following the release of a proposed plan of reorganization put together by a majority of senior secured noteholders.

The plan would deleverage the company by over $700 million.

Meanwhile, distressed investors were also keeping an eye on Puerto Rico’s municipal debt after Moody’s Investors Service downgraded both the general obligation bonds and the sales tax-backed debt.

Overall, the market ended the day mixed.

Caesars Entertainment Corp.’s 10% second-lien notes due 2018 were steady at 38½, a trader said, but both the 9% notes due 2020 and the 12¾% notes due 2018 were up fractionally at 83 1/8 and 44, respectively.

In the world of retail, Gymboree Corp.’s 9 1/8% notes due 2018 fell 1½ points to 66¾. However, RadioShack Corp.’s 6¾% notes due 2019 inched up a tad to 42.

Exide debt fizzles

A trader said Exide Technologies’ 8 5/8% notes due 2018 were “down a bunch” on Tuesday, following the release of a proposed reorganization plan from senior secured noteholders.

The trader noted that trading in the issue wasn’t overly active, however, seeing the paper quoted wide in a +/-50 context.

Another trader said the bonds were offered in the previous session at 61, then 60, then 59. Early Tuesday, paper was bid for in the mid-40s.

He said he saw a quote of 48 bid, 53 offered during the session, which was down “almost 10 points, without any trading.”

Late Monday, the Milton, Ga.-based battery manufacturer and recycler announced that it had received a proposal for a plan of reorganization that aimed to deleverage the company by more than $700 million.

Under the terms of the plan submitted by a majority group of senior secured noteholders, the company would issue $300 million of new preferred convertibles in connection with a rights offering backstopped by certain members of the noteholder group. Another $185 million of new debt would be issued, also backstopped by members of that group.

And, the company would obtain a new asset-based loan facility from third party lenders.

In connection with the proposal, Exide sought and won an extension to file an official plan of reorganization.

The company now has until July 31 to file the plan, versus a previous deadline of June 27.

Puerto Rico downgraded

Puerto Rico’s 8% series 2014A general obligation bonds due 2035 – a $3.5 billion issue that came March 11 at 93 – were “definitely off some” after Moody’s downgraded the debt to B2 from Ba2.

The trader said the bonds were trading around 87 earlier in the day, but came down to 85 by the close.

That compared to Monday’s close around 88, he said.

Moody’s action is the latest in a string of ratings actions and other events that have plagued the cash-strapped U.S. territory. Last week, the commonwealth passed legislation that cleared the way for some of the island’s public entities – such as power and transportation authorities – to restructure its debt. The move is aimed at separating the public entity debt from the G.O. bonds, which calls into question whether or not the government intends to support the public entities.

“[T]his legislation casts a cloud over not only [PR Electric Power Authority], which is most likely to use the law to restructure and default, but all PR issuance, since it calls into question political leadership’s willingness to meet its debt obligations,” said Alan Schankel, managing director with Janney Montgomery Scott LLC in a note out Tuesday.

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