Walter, other coal credits rebound amid generally stronger market; Momentive, Verso better

By Paul Deckelman

New York, Jan. 30 - After having been pushed around over the past several sessions, bonds of distressed and underperforming companies were seen better on Thursday, in line with a generally stronger high-yield market. Junk, meantime, seemed to follow the lead of equities, which rallied after several sessions of Federal Reserve-induced anxiety, led by the tech sector.

Coal names like Walter Energy, Inc., which had been among the big losers during Wednesday's session, were leading the distressed-debt rebound.

Other coal names such as Alpha Natural Resources, Inc. and Arch Coal, Inc. were seen having come along for the ride.

Other names on the upside included Verso Paper Corp., whose bonds and shares both rose, even though there has been no fresh news out about the coated paper maker since its warning earlier in the week that its pending acquisition of sector peer NewPage Corp. could be jeopardized by tepid investor response so far to its exchange offer for its current notes.

And Momentive Performance Chemicals Inc.'s paper was better.

Walter does wonderfully

Clearly one of the stars of the day was Walter Energy's 9 7/8% notes due 2020. A market source saw those bonds having jumped by 1½ points to end at 76½ bid, with volume of over $9 million putting it high up on the Most Actives List.

A second trader also saw the notes at that higher level, calling them up by more than 1 point.

That stood in sharp contrast to losses seen in those notes on Wednesday.

There was no fresh news seen out on the company, whose bonds and shares have been in a rut over the past several days on negative analysts' commentary.

The Birmingham, Ala.-based metallurgical coal producer's bonds have slid into the mid-70s from recent highs about a week ago in the 83-to-84 bid context, in line with weaker prices of metallurgical coal, which is used in the production of steel and other metals. Those prices, which had already been considered low at $132 per ton, have now slid to $125 per ton, and some analysts think they could come down even further.

Walter's paper has been battered by negative commentary such as that offered by Wells Fargo Securities, which downgraded its shares to "market perform" last Friday from "outperform" previously. Analyst Sam Dubinksy warned in a research note that while pricing for metallurgical coal had been expected to recover as Chinese steel production improved, "this did not occur," as China grew its output by over 8%, but pricing still fell due to supply additions at low-cost miners and on foreign exchange fluctuations. Dubinsky further cautioned that "with China potentially slowing again due to tightening credit, we believe pricing will remain a challenge in 2014. Given Walter's high debt loads and earnings likely to remain very weak, we are more cautious on shares."

On Monday, Citigroup analyst Brian Yu cautioned that Walter and sector peer Alpha Natural Resources stood to be hurt more than most other coal companies by the fall in prices for metallurgical coal.

Besides putting Walter under pressure, that pushed Bristol, Va.-based Alpha Natural Resources' bonds down, but on Thursday, its 6% notes due 2019 were up 5/16 point to finish just above 83.

Sector peer Arch Coal's 7¼% notes due 2021 were up nearly 1¾ points on the day, to 76¼ bid.

Momentive moves up

Away from the coal names, Momentive Performance Materials' 9% notes due 2021were seen by a trader having gained 1½ points on the session to go home at 91½ bid, on volume of over $8 million. That more than made up for the 1-point loss the credit had suffered on Wednesday.

The Columbus, Ohio-based specialty chemical manufacturer meanwhile announced earlier in the week that it is increasing prices for base epoxy resin products in its Europe, Middle East and Africa region by €90 per metric ton. The new pricing becomes effective on Feb. 1, or as contracts allow.

Verso shows improvement

A trader quoted Verso Paper's 8¾% notes due 2019 up 2 points on the day, at 54 bid. Its 11 3/8% notes due 2016 got as good as 73 bid, up from Wednesday's levels in a wide 64 to 71 context.

At the same time, its New York Stock Exchange-traded shares jumped 12.83% on the day, or 34 cents, to close at $2.99, although volume of 561,000 shares was around, or maybe a little below, normal.

There was no fresh news out on the Memphis-based coated paper company - which earlier in the week had warned the board of directors of NewPage, which Verso is trying to acquire in a $1.4 billion deal announced several weeks ago, that it may fall short of obtaining the needed threshold in the exchange offers and consent solicitations related to those acquisition plans.

Verso subsidiaries Verso Paper Holdings LLC and Verso Paper Inc. began exchange offers on Jan. 13 for their $396 million of outstanding 8¾% second-priority senior secured notes due 2019 and $142.5 million of outstanding 11 3/8% senior subordinated notes due 2016.

Each exchange offer is conditioned on obtaining tenders for at least 85% of each outstanding note series, and the closing of the merger is conditioned on completion of the exchange offers - but Verso advised NewPage that "in light of substantially less participation by the early tender time as compared to the minimum participation thresholds, and based on the large disparity between what a group of non-participating noteholders has requested and what Verso is able to offer under the merger agreement governing the pending merger, Verso is concerned about its ability to consummate the exchange offers as required under the merger agreement," according to an 8-K filing with the Securities and Exchange Commission.

Market participants have speculated that with the exchange offers badly lagging their target participation goals, the company might have to go back to its bondholders and offer them better terms in order to gain their cooperation for the exchange, which would be a necessary prerequisite for the merger deal to go though.

But there has been no official word from the company of any such move.

Bonds mostly better

The distressed names were seen by traders being carried along on the overall rising tide in the junk bond market, which was seen generically better by between ¼ and ½ point after having weakened on Wednesday.

Junk, in turn, was seen having taken its cue from a stock market that was squarely in a rebound mode after having taken its lumps over several sessions on investor worries about what impact the increased Federal Reserve tapering off of its quantitative easing bond-buying program might have on the economy, as well as jitters about the state of some of the emerging markets such as China and Turkey.

However, those fears took a back seat Thursday amid a tech-led rally that sent the bellwether Dow Jones industrial average up by 109.82 points, or 0.70%, to end at 15,848.61. The broader S&P 500 index rose by 19.99 points, 1.13%, to close at 1,794.19 - the market gauge's biggest one-day percentage gain since Dec. 18. The even broader Nasdaq Composite index saw its biggest daily percentage rise since Oct. 10 as it firmed by 71.69 points, or 1.77%, to go home at 4,123.13.

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