Patriot bonds recover some losses; MBIA seen wide; Navistar debt declines; Hawker loan gyrates

By Stephanie N. Rotondo and Paul Deckelman

Phoenix, July 10 - Patriot Coal Corp.'s bonds managed to stage a modest comeback on Tuesday after a 10-point decline on Monday.

The previous day's losses began as Bloomberg reported that the company had lined up bankruptcy financing and that a filing was expected soon. The company did actually file after the market closed.

Still, the bonds were able to recover a couple points in Tuesday trading, according to market sources. Other coal names, however, were not as lucky.

Meanwhile, MBIA Insurance Corp. might not be making a coupon payment on its 14% surplus notes due 2033, as the company has yet to receive approval from regulators. Paper was trading down on the day, a trader reported.

Navistar International Inc. paper was again on the decline, "dragged down in part by the Cummins news," a trader said. The bonds dropped 3 points as its competitor issued a warning on its sales forecast.

Patriot recovers territory

A trader said Patriot Coal's 8¼% notes due 2018 were trading in a 36-37 context Tuesday, which was up a couple points from 33 bid, 34 offered on Monday.

Another market source called the issue up over 3 points at 35¾ bid.

The St. Louis-based coal producer's debt began drifting down Monday on a news report by Bloomberg that stated the coal producer had lined up financing ahead of the entrance into Chapter 11.

In the report, Bloomberg cited "two people with knowledge of the matter" who said that the company had lined up debtor-in-possession financing via Citigroup Inc., Barclays plc and Bank of America Corp.

Well after the market closed, the report proved true: Patriot announced it had in fact filed for Chapter 11 protections and that it had secured $802 million of DIP financing.

Falling demand has hurt the company, which has lost over $7 billion in value this year. New environmental regulations have also burdened Patriot and its peers, as consumers seek cleaner forms of energy.

The company has been working with creditors since May to come up with a restructuring plan and had hired Blackstone Group LP to facilitate negotiations. A proposal was not settled on, however.

News of the bankruptcy filing resulted in a downgrade from both Standard & Poor's and Moody's Investors Service on Tuesday. S&P dropped the company to D from CCC, while Moody's lowered the ratings to D from Caa1.

Though Patriot had a bit of a rally Tuesday, other names in the sector were reacting negatively to news of the bankruptcy.

A trader said Arch Coal Inc.'s 7¼% notes due 2015 fell over a point to 833/4, while the 7¼% notes due 2020 were a point weaker at 84.

MBIA quoted wide

MBIA Insurance's 14% fixed-to-floating surplus notes were "quoted wide," a trader said, at 44 bid, 54 offered.

He added that he thought the notes were down on the day, though he doesn't regularly follow the name.

In a regulatory filing Tuesday, MBIA Insurance's parent company MBIA Inc. said that the New York State Department of Financial Services has not yet decided whether to approve a request to make a July 16 interest payment on the debt.

MBIA is based in Armonk, N.Y. and provides financial guarantee insurance, investment management services and other services to public finance and structured finance clients.

Navistar declines

Navistar's 8¼% notes due 2021 lost 3 points on the day, according to a trader who pegged the paper around 90.

The trader said the declines were due in part to news from Cummins Inc., a sector rival. The company cut its full-year sales forecast on Tuesday, citing lower U.S. orders as well as in emerging markets and a stronger dollar.

Cummins said it was expecting sales of $4.45 billion for the second quarter and added that its full-year forecast would likely be closer to 2011 levels, instead of the 10% increase that was previously expected.

Cummins' disclosure follows a similar one from Dover Corp. on Monday. That company cut its 2012 profit, pointing to Europe's economic woes.

Radiation Therapy drifts lower

A trader said that Radiation Therapy Services Inc.'s 9 7/8% notes due 2017 fell about 6 points, finishing in a 58-to-60 context, although "not a whole lot traded - it's a small deal," totaling about $360 million.

A second trader said that the Fort Myers, Fla.-based radiation oncology services provider's bonds "continue to get hit," and are trading below 60. He said that the paper fell after the government body that sets Medicare and Medicaid reimbursement rates for providers released its preliminary 2013 rate schedule on Friday - calling for sharp cuts in the amount that Washington will pay such companies for providing radiation therapy services to Medicare patients.

A market source at another desk said that the bonds - which had been trading as high as the 78 level at the beginning of the month - opened around 74 on Monday and then swooned to the 65 bid level, although volume was light, at only $5 million or so.

On Tuesday, he said, the bonds continued to fall, with over $10 million traded, finally bottoming late in the session at 59¾ bid.

Yet another source said the debt was "down some more," falling to the high-50s from the mid-60s.

"They cracked yesterday," he said.

On a late-afternoon conference call on Monday, the company's chief financial officer, Brian J. Carey, declared that "much to our surprise, the proposed fee schedule included some drastic cuts to radiation oncology, which had not been part of any previous discussions" or other rate-setting processes used by the Centers for Medicare and Medicaid Services.

Carey told analysts and members of the financial media on the hastily scheduled call that the government body had taken "an unprecedented approach - CMS cited concerns in the media about alleged overutilization" of radiation therapy services, largely in the area of prostate cancer, as the primary driver for the potential cuts.

He said that the government took its data from newspaper articles and then also used data from patient-education websites as the basis for reducing the assumed number of minutes per treatment used in calculating the reimbursement formulas from 60 minutes per session to 30 minutes.

"Most importantly," he added, "CMS did not factor in the very significant cost increases - the cost of equipment and facility costs, service contracts [with medical personnel] and other resources, which had not been updated since the original assumptions in 2002."

He said that "a key" to any reimbursement rate setting process "is to use actual survey and cost data, and factor in both activity and resources, in arriving at an appropriate payment. Simply, you can't update the numerator [in the formula] without updating the denominator."

He said that as a result of the changes the government's methodology, proposed payment levels for some forms of radiation oncology would be reduced by almost 30% from today's levels - and other levels by as much as 40%. Interested parties will have 60 days from the publication of the proposed rates last Friday, to make their objections or other concerns known, with the permanent rates for the coming year to be announced after that, likely some time in September or October.

Carey also protested as "incredible from a public policy standpoint" the fact that CMS has proposed the reductions for payments made for treatments at free-standing radiation therapy centers of the type that Radiation Therapy and its competitors operate - but at the same time is proposing increases to payments for certain similar treatments in a hospital setting - meaning hospitals would be paid $484 per treatment by Medicare, versus $285 per treatment at a freestanding center.

Hawker bank debt gyrates

Hawker Beechcraft Acquisition Co. Inc.'s strip of bank debt started the day with one trader seeing it trade at 77, then he had it at 75 bid, 78 offered early in the day, and by late afternoon, he put the debt at 74½ bid, 76½ offered.

A second trader, had the strip at 75¾ bid, 76¾ offered in the afternoon. He wasn't sure where it was in the morning but said it went out really wide on Monday at 72 bid, 77 offered.

On Monday, the company announced that it executed an exclusivity agreement with Superior Aviation Beijing Co. Ltd., a Beijing-based aerospace manufacturer, regarding a strategic combination. The transaction would not include Hawker Beechcraft Defense Co.

Under the agreement, Superior would buy Hawker Beechcraft for $1.79 billion. However, if Hawker Beechcraft Defense is sold, up to $400 million of the purchase price will be refundable to Superior.

If negotiations with Superior are not successful, Hawker Beechcraft, a Wichita, Kan.-based aircraft manufacturer, will proceed with seeking confirmation of its plan of reorganization.

Revel loan down

Revel Entertainment Group LLC's term loan B dropped to 80 bid, 81 offered, from 80½ bid, 82 offered, in connection with the emergence of June revenue results, according to a trader.

For the month of June, the company had total revenue of $14.93 million, and year-to-date revenue is $42.5 million, the New Jersey Division of Gaming Enforcement reported on Tuesday.

By comparison, in May, the company had total revenue of $13.93 million.

Revel, a gaming and entertainment company, commenced operations on March 28 and opened to the public on April 2.

Verso, Caesars, ATP lose

Among other distressed names, a trader said Verso Paper Corp.'s 8¾% notes due 2019 were down a deuce at 431/2, on no news.

Caesars Entertainment Corp.'s 10% notes due 2018 were also softer, slipping over a point to end around 68.

And, ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 lost a point to finish out around 451/2, according to one trader.

Another trader deemed the issue down 2 points at 44 bid, 45 offered.

Sara Rosenberg contributed to this article

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