Knight Capital gets temporary funding, bonds rally; Exide, Edison recoup losses; ATP inches up

By Stephanie N. Rotondo

Phoenix, Aug. 3 - The distressed debt arena ended the week on a positive note, which helped give some recently knocked-down names a boost.

Knight Capital Group Inc. was recovering losses incurred Wednesday and Thursday, after a computer glitch at the market maker caused erroneous trades in as many as 150 New York Stock Exchange-listed securities. The company said it had received funding to help it get through Friday's session but that its future after that remained murky.

Meanwhile, Exide Technologies Inc. was on the rebound after falling in the previous session on the back of earnings that failed to meet expectations. Edison International Inc. paper was also staging a comeback after reporting lackluster numbers earlier in the week.

ATP Oil & Gas Corp.'s notes were seeing "a little recovery," according to a trader. Earlier in the week, outlets reported that the company's bondholders were seeking advisors for a potential restructuring effort, which pressured the debt. The bonds have been inching higher in the last few sessions, however, even as the yield on the paper increased to nearly twice that of Greek government debt.

Knight thrown a bone

Knight Capital Group got a temporary reprieve Friday when it secured a credit line that would allow it to continue operations at least through the end of the week session.

The news helped the company's 3.5% convertible notes due 2015 rally back from the low- to mid-70s to the low-80s, according to a trader.

Another market source quoted the issue at 82 bid, 82½ offered.

The Jersey City, N.J.-based market maker's troubles began Wednesday morning, when a computer glitch caused erroneous trades in over 100 NYSE-listed securities. On Thursday, Knight confirmed that it was the cause of the problem and that it had been rectified, but not before costing the company $440 million.

Due to its overnight crisis, Knight had to go looking for funding or a potential buyer.

A bankruptcy filing has not been ruled out.

The computer problem has raised concerns about the dependence on technology. On Friday, Securities and Exchange Commission Chairman Mary Schapiro said the issue was "unacceptable" and that the SEC was looking into pushing through a rule that would require companies to better protect their systems.

"Reliance on computers is a fact of life, not only in markets everywhere, but in virtually every facet of business," Schapiro said in a statement. "That doesn't mean we should not endeavor to reduce the likelihood of technology errors and limit their impact when they occur."

Exide recovers a bit

Exide Technologies' dismal earnings on Thursday pushed the company's debt lower, but the paper came back on Friday.

A trader said the 8 5/8% notes due 2018 had fallen to levels around 75 on Thursday, but rebounded to 78½ on Friday.

Another trader said paper had dipped to 76, but "rallied back" to levels in the high-70s.

The Milton, Ga.-based battery maker reported a wider first-quarter loss for the quarter ending June 30. Net loss was $106.5 million, or $1.38 per share.

That compared to a $5.2 million, or 7 cent per share, loss the year before.

Revenues declined 7% to $693.4 million.

Operating income dropped to $1.1 million, down $12.6 million from the first quarter of 2011.

Edison paper rallies

Edison International bonds were also climbing their way back up following an earnings release - and bankruptcy warning - earlier in the week.

A trader called the bonds up a touch, the 7½% notes due 2017 closing at 53¼ and the 7.2% notes due 2019 at 52 7/8.

But another trader called the 7% notes due 2017 "about unchanged," seeing them trade with a 53 handle.

On Wednesday, the Rosemead, Calif.-based utility reported a quarterly loss of $110 million at its Edison Mission Group unit, versus a $30 million los the previous year. The wider loss was attributed to lower power prices and higher fuel costs.

The parent company warned that its subsidiary might be forced to file for bankruptcy, even as the company attempts to restructure $3.7 billion in debt.

At the company's San Onofre nuclear plant, which is currently facing a government probe, net income dropped to $103 million, or 23 cents per share, from $191 million, or 54 cents per share, the year before.

MolyCorp quoted lower

While other credits were staging comebacks, MolyCorp Inc. was not as lucky.

A trader said the 10% notes due 2020 - a $650 million issue that priced May 18 - was being quoted into the mid-80s from the mid-90s after the company released "crappy" numbers.

The Greenwood Village, Colo.-based rare earth metal exploration company said Thursday that cash flow from operations had not been as freely flowing as previously expected and that, given such, it was looking for new avenues of funding.

"We cannot assure you that we will be able to obtain any financing on commercially acceptable terms or at all," Molycorp said in a statement.

In addition to announcing the cash shortfall, MolyCorp reported a loss of $67.6 million, or 71 cents per share. That compared to a net income of $47.8 million, or 53 cents per share, for the same quarter of 2011.

Revenues, however, were 5% higher at $104.6 million.

ATP gains again

ATP Oil & Gas' 11 7/8% notes due 2015 were recovering some after getting hammered earlier in the week on news the company's bondholders were seeking advisors for a potential restructuring.

One trader said the debt was up 3 points at 37, with about $16 million changing hands.

Another trader said the notes were "probably a little better" at 36 bid, 37 offered.

The Houston-based oil exploration company has seen yields on its debt climb up to 68%, over 50% the yield on Greek government debt, which has the luxury of getting government funding.

In about three months, the company - which has been struggling to increase production at its wells - has an $89 million interest payment due. Investors are concerned that there may not be enough cash to fund the payment.

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