Global Geophysical bonds get 'beat up'; Walter Energy stays topical; Energy Future drifts down

By Stephanie N. Rotondo

Phoenix, March 25 - Distressed debt was taking a backseat to newer high-yield issues on Tuesday, according to a trader.

However, that didn't stop Global Geophysical Services Inc.'s bonds from falling 7 to 8 points on the day.

The company recently said that it would have to not only restate past earnings, but that it was delaying filing its 10-K. That news prompted both Moody's Investors Services and Standard & Poor's to downgrade the company.

Meanwhile, Walter Energy Inc. remained topical, though trading in the bonds - at least some of its issues - quieted down. Still, concerns about the prices of metallurgical coal continue keeping investors focused on the name.

Rumors are swirling that Energy Future Holdings Corp.'s expected bankruptcy filing could come as early as this weekend. The bonds were on the sifter side as investors prepare for whatever that filing may look like.

Global Geo packing on losses

A trader said Global Geophysical's 10½% notes due 2017 "really got beat up good" in Tuesday trading.

He called the issue off 7 to 8 points around 50.

Another trader deemed the debt down 7½ points at 501/2, though he noted it was on "just a couple of trades."

Last week, the Houston-based provider of geoscience solutions to the oil and gas industry said that it would have to restate earnings for 2012, 2011, 2010 and 2009, along with the first three quarters of 2013.

The company said the figures should "no longer be relied upon because of accounting errors resulting from material weaknesses in the company's internal controls."

As such, the company noted that it was delaying filing its latest 10-K.

In addition to the restatement news, the company also said that due to its increasing debt burden, it had retained financial advisors to look over its options, while also securing a forbearance from its senior secured lenders.

On that news, S&P dropped its rating on Global Geophysical to CCC- from CCC+ and Moody's followed suit, cutting its rating on the company to Caa2 from B3.

Walter Energy's toggles active

Walter Energy's recently priced $350 million issue of 11% senior secured second-lien PIK toggle notes due 2020 were on the active side Tuesday, though traders reported that its other issues were quiet.

One trader said the issue was off about half a point, trading in a 94 to 94½ context. But another trader said the paper "crept up a little bit from its lows," seeing the debt around 95.

The deal came Wednesday at par and immediately began to lose ground.

A third trader said the bonds "for the most part look unchanged on the day," a trader said, adding that he "didn't see much trading."

He quoted the 8½% notes due 2021 in a context of 64½ to 66. "They were quoted better, but there really was not much activity at all," deciding they were "pretty much unchanged."

He said Walter's 9 7/8% notes due 2020 also were about unchanged with "not much activity," ending at around 69-70. He said "a lot of little pieces traded."

The new 9½% 2019 notes were about unchanged at 102-103, while the 11%/12% PIK toggle notes were also little changed, with the trader estimating them around 94-95.

Investors have been concerned about the coal sector in general, but especially about metallurgical coal companies such as Walter. An energy industry analyst told Prospect News that the metallurgical coal business "is a deeply cyclical industry, operating at current pricing that is well below [normal] levels over the last year-and-a-half to two years. How long met coal pricing is going to stay at these levels is a topic that you can debate for some time."

He cautioned, "I don't see anything in the near term that's going to drive met coal pricing substantially higher." While he said that over the longer term, prices should start to strengthen, he added the caveat that this is "unlikely to happen in the next 12 to 18 months and maybe even longer."

Still, "the good news" for Walter Energy is that "the company has at least a year to a year-and-a-half of liquidity, maybe even longer, if they get some asset sales done and they can wait for the uptick in pricing."

However, he added that "the bad news is they're burning cash and it's unclear when that's going to happen."

Summing up, he opined that "over time, their pricing is likely to improve. It's just a question of when."

Energy Future filing expected

Energy Future Holdings' expected bankruptcy filing could come as early as this weekend, a trader said.

"The talk is maybe this weekend," he said.

Though the bankruptcy has long been expected due to the company's high leverage and falling power prices, Energy Future - or TXU as it is more commonly known - managed to put it off for several months when it made a coupon payment back in November.

The company elected to make the payment as restructuring negotiations with creditors fell apart.

Heading into the potential filing, a trader said the 15% notes due 2020 were "down another couple points" around 19. Another trader said the issue was off over a point at 181/2.

Paul Deckelman contributed to this article

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