Distressed bonds drop as investors fear rising rates; Exide takes a hit; PDVSA pressured again

By Stephanie N. Rotondo

Phoenix, June 20 - There was "a lot of carnage" in the distressed debt market on Thursday, a trader said, as investors responded negatively to the Federal Reserve's FOMC comments made on Wednesday.

"A lot of low-coupon stuff got whacked," the trader added. "Treasuries got whacked, but they kind of came back."

The Fed said after its meeting in the previous session that it was looking to taper off its stimulus effort in the next year. As such, many are concerned that interest rates will go higher.

"Everything was down 2 to 4 points," another trader said. "There was just weakness across the board."

The second trader pointed out that there was little to no fresh news in any specific credit to cause the overarching softness.

Exide Technologies Inc.'s 8 5/8% notes due 2018 "got beat up," the trader said, seeing the paper fall to around 60. Another trader also pegged the issue around 60, which he called down over 2½ points.

Las Vegas-based Caesars Entertainment Corp. was also on the down side, as the 10% notes due 2018 dropped a deuce to 56, according to a trader. A second market source pegged the debt at 56½ bid, down 2¼ points.

The already-struggling coal sector was also weaker. A trader said Alpha Natural Resources Inc.'s bonds lost 3 points on the day, the 6¼% notes due 2021 at 81 and the 6% notes due 2019 at 83.

Down 4 points were NII Holdings Inc.'s 7 5/8% notes due 2021, which closed at 751/2, a trader said.

And, Clear Channel Communications Inc.'s LBO bonds "got whacked pretty good," a trader remarked.

He saw both issues losing about 3 points, the 10¾% notes due 2016 at 86 and the 11% notes due 2016 at 88.

In the emerging market space, Venezuela's Petroleos de Venezuela SA saw its bonds decline as much as 6½ points, according to one trader.

The 9% notes due 2021 were down that much, closing around 77, he said. The 8½% notes due 2017 - the day's most actively traded issue in the overall high-yield space - dipped a point to 88, as the 9¾% notes due 2035 lost over 3 points to end around 73.

The 5¼% notes due 2017 dropped 4¾ points to 761/4.

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