TXU bonds improve; Overseas Shipholding rises; Caesars issues gain despite Moody's downgrade

By Stephanie N. Rotondo

Phoenix, May 30 - The distressed debt market saw activity picking up a little as the week came to a close.

Among bankrupt names, Energy Future Holdings Corp. debt was moving higher. One trader speculated that the gains were due to investors seeing higher recovery models.

Meanwhile, with its reorganization plan hearing on the books, Overseas Shipholding Group Inc. debt has been on the rise, helped by a new agreement that bondholders appear to like.

In the rest of the distressed space, Caesars Entertainment Corp. saw some of its Caesars Entertainment Operating Co. debt downgraded late Thursday. Though the casino operator's bonds had been weaker leading up to the announcement, the paper was attempting to regain some ground come Friday.

TXU debt climbs higher

A trader said that "people must be assessing more value" in Energy Future's Texas Competitive Electric Holdings Co. LLC bonds because the debt "continues to move up."

He called the 15% notes due 2021 up "another 4 points" around 38. The 10¼% notes due 2015 and the 10½% notes due 2016 meantime inched up to 9¾ from 9 previously.

The Dallas-based power producer filed for bankruptcy in late April after months of negotiating with creditors.

Overseas Ship's rising tide

Overseas Shipholding is set to have its plan of reorganization approved at a hearing in mid-July.

The plan on the table has caught the eye of some investors, who have helped to push the New York-based shipping company's bonds higher.

One trader said the debt was "very active," with the 7½% notes due 2024 rising about half a point to "almost" 110. The 8 1/8% notes due 2018 were pegged around 119.

Earlier in the week, the company filed an amendment to a previously filed plan. Under the amendment, holders of the 7½% notes were allowed to have their notes reinstated and were also given a cash payment equal to all the unpaid and overdue interest. However, holders were also given an option to receive new notes plus a cash payment equal to 1% of the principal amount of their holdings, plus interest on those notes.

The new notes will come due Feb. 15, 2021.

Holders of the 8 1/8% paper are also getting their holdings reinstated as well as a cash payment.

"That could end up being a pretty attractive piece of paper," a trader said of the new notes.

Caesars up despite downgrade

Late Thursday, Moody's Investors Service announced that it had lower Caesars Entertainment Operating's first-lien debt to Caa2 from Caa1, citing high restructuring risk.

"I don't know that it made much of a difference," a trader said Friday of the downgrade. "[The bonds] were all up."

The debt had been off leading up to the downgrade announcement.

In Friday trading, the trader said the 11¼% notes due 2017 were up 2¼ points at 891/2. The 9% notes due 2020 were up a similar amount around 803/4.

As for the 8½% notes due 2020, those bonds gained almost 1½ points to close around 79 7/8.

The 10% notes due 2018 inched up just a quarter-point to 431/4, according to the trader.

Like other ratings agencies, Moody's reiterated its belief that the Las Vegas-based company will have to restructure, and soon.

"Despite an improvement in near-term liquidity, our long-term rating remains unchanged reflecting our view that CEOC will eventually have to pursue a debt restructuring that will lead to creditor losses," Moody's analyst Peggy Holloway said in a press release.

Kim Noland, an analyst with Gimme Credit LLC, echoed Moody's sentiments in an afternoon report out Friday.

"While we know the equity owners are hoping for a big turnaround in operations at the opco, we believe the situation is so compromised that severely negative cash flow at the CEOC entity will ultimately require a restructuring that implicates all debt levels including the first-lien debt."

Noland also opined that the second-lien debt is overvalued.

River Rock in default

River Rock Entertainment Authority's 9% notes due 2018 were quoted around 28, a trader reported.

On Wednesday, the Geyersville, Calif.-based casino operator announced that it would not be making a coupon payment on the 9% notes nor on the 8% tax-exempt notes due 2018.

The payment came due May 1.

As such, the company is now considered to be in default. Under the terms of the indenture, cash flow will now become a source of possible contention.

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