Distressed bonds soft, but not 'bloodbath'; Walter Energy steady; Cengage debt rallies on deal

By Stephanie N. Rotondo

Phoenix, Feb. 3 - Distressed bonds were on the weaker side Monday, following in line with a massive drop in equities.

As for the common stock market's part, the Dow Jones industrial average fell more than 326 points, while the S&P 500 dropped 2.28%. The decline was attributed to new manufacturing data, which suggested that the economy was growing at a slower pace than previously thought. That in turn resulted in revived talk that Janet Yellen, the newly installed Federal Reserve chairman, would pause the central bank's plan to taper its stimulus program.

However, one trader said the bond market's dip "didn't seem like a bloodbath," though there were "definitely things that were weaker.

"Maybe with the weather [on the East Coast], we didn't have full participation," he speculated as the reason the market held up fairly well and why volume was on the lighter side.

There wasn't, for instance, much going on in recently topical names like RadioShack Corp., he said. "It didn't seem like there was even that much action in the coal names," which have been under pressure recently due to concerns about the possibility that metallurgical coal prices will decline.

Walter Energy Inc., one such name that has specifically been mentioned by analysts recently, was "about where they were," its 9 7/8% notes due 2020 hanging out around 76.

Elsewhere in distressed, Momentive Performance Chemicals Inc.'s 9% notes due 2021 were "probably a little bit better," trading in a 91½ to 92 context, according to a trader.

Clear Channel Communications Inc.'s 9% notes due 2019 were meantime "a little bit softer" around 1011/4.

Cengage rises on accord

Cengage Learning Inc.'s bonds experienced "a little bit of a rally" on word the company had reached a global settlement with lenders and other creditors, allowing the company to exit bankruptcy with $4 billion less of its $5.8 billion funded debt.

A trader pegged the 11½% notes due 2020 in a 93-to-94 ZIP code, down from the intra-day high around 95, but still firmer compared with Friday. The 10½% senior notes due 2015 closed "around 30," while the 12% senior secured second-lien notes due 2019 were placed around 25.

Under the terms of the new agreement, first-lien bondholders will receive most of the new equity in the reorganized company, while second-lien and unsecured creditors will get $225 million in either cash or stock.

The agreement also provides for $1.75 billion to $2 billion of exit financing. Cengage hopes to file a new plan based on the agreement and to get that plan confirmed by March.

The Stamford, Conn.-based textbook publisher filed for Chapter 11 protections in July.

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