TXU bonds lower, Sun Products firms; MGIC, Radon converts off; Puerto Rico slide halted

By Paul Deckelman

New York, July 16 – Texas Competitive Electric Holdings Co. LLC bonds were seen having moved lower in active trading on Wednesday, although distressed market participants did not see any new developments out on the company, which is part of Energy Future Holdings Corp., the bankrupt successor to the company formerly known as TXU Corp.

Elsewhere, Sun Products Corp.’s bonds – which fell on Friday after Moody’s Investors Service downgraded the detergent and household products manufacturer’s ratings and which have been struggling to rebound ever since – managed to firm from those recent lows, traders said.

In the convertibles market, MGIC Investment Corp.’s paper was trading around at lower levels on an outright basis – though slightly better on a hedged basis – after the Milwaukee-based mortgage insurer reported disappointing earnings that sent its shares lower by 7%.

Sector peer Radian Group Inc. meanwhile saw its two convertible bond issues trade mixed. The bonds of both mortgage insurance companies have been fairly busily traded in the last few sessions after proposed liquidity rules for mortgage insurers were unveiled by the Federal Housing Finance Agency.

And Puerto Rico’s battered bonds and those of the island commonwealth’s public agencies, such as its local power authority, were seen by market sources to have finally stanched the bloodletting seen in recent sessions following the legislative vote in favor of allowing those entities to restructure their debt – which in turn led to ratings downgrades from the major credit agencies.

TXU paper trades off

A trader said that Texas Competitive Electric Holdings “was the most notable name in the distressed today.”

He saw its 11½% notes “down a few points on the day,” quoting them at 87 bid, 87½ offered, while its 10¼% notes due 2015 were off by about 1 to 1½ points early on, trading in a 13-14 context. However, he said that “toward the end of the day” they started to edge back up, and so ended only “down a little bit,” at 14 bid, 14½ offered.

“But certainly, some of that stuff – the 11½s and the 10¼s – was down a little.”

A second trader saw the 11½% paper ending down a deuce on the day at 87 bid.

However, another trader said that at the end of the day, the 10¼% notes were “pretty much unchanged” in a 14-to-15 context. He saw fairly brisk volume in the $8 million to $10 million range – but saw “really good volume” in the company’s other issue, the 15% notes due 2021, with between $34 million and $35 million having changed hands, “one of the most active issues of the day.”

He said the 15s had been moving around the 42-to-44 area but were trading at the low end of that range late in the session, leaving them off about 1½ points from Tuesday’s close at 44 bid.

Another of the traders agreed that the latter issue was “down a couple of points as well,” pegging the bonds in the 41-to-42 neighborhood going home.

There was no fresh news seen out about the company, a unit of Dallas-based Energy Future Holdings, now wending its way through a Chapter 11 restructuring proceeding before the federal bankruptcy court in Wilmington, Del.

Sun Products in rally try

Elsewhere, a market source saw Sun Products’ 7¾% notes due 2021 at 83½ bid, calling that a 3/8 point gain on the day. More than $10 million of those notes traded.

“It seemed like it was pretty actively quoted,” another trader said, noting that the bonds had started the day around 82½ bid, 83½ offered before moving up to trade between 83 and 83¾.

“They were steady for most of the day, then they tried to inch up at the end of the day. Maybe they were up about half a point.

“But, it seems like there was some activity there.”

The company’s bonds had started out at the beginning of last week around 87 bid but had slipped to 84 by the end of the week, hurt by a ratings downgrade from Moody’s Investors Service.

The agency cut the Wilton, Conn.-based manufacturer of branded and retailer brand fabric care and dish-care products, keeping its outlook at negative and lowering its corporate family rating to B3 from B2, its probability of default rating to B3-PD from B2-PD and its senior unsecured debt rating to Caa2 from Caa1.

Moody’s said the downgrades reflect recent deterioration in the company's credit metrics due to heavy competition in the laundry-care category that will likely cause financial leverage to remain above the 6.5x debt/EBITDA threshold for at least several quarters after over a year above the threshold already.

Distressed bonds a mixed bag

Among other credits, a trader said that he saw “little activity” in Verso Paper Corp.’s 7% notes due 2019, calling them “pretty much unchanged” at 88½.

He said the Memphis-based specialty papers manufacturer’s bonds “had moved into the 90s briefly last week and then came down, and now they’ve stabilized around 88½.”

A trader said that Caesars’ Entertainment Corp.’s 10% notes due 2018 “continue to drift in,” quoting the Las Vegas-based casino giant’s paper around 35 to 35¼.

He said that Walter Energy Inc. “wasn’t trading – but it seemed like it drifted a little bit.”

He saw the company’s 8½% notes due 2021down around 54 bid, which he said was off “more than 1 point” from its last previous trade.

He said the Birmingham, Ala.-based metallurgical coal producer’s 11% PIK notes due 2020 were down another ½ point to around 78-79.

MGIC, Radian converts drop

In the convertibles market, MGIC Investment Corp.’s 2% notes due 2020 traded late in the session at 131.385, down 8 points on an outright basis, although a trader pointed out that it was about 0.5 point better on a dollar-neutral, or hedged, basis. Over $4 million traded.

Those MGIC 2% convertibles trade on about a 30% delta.

The MGIC 5% converts dropped by about 1 3/8 points to 110¾ on volume of about $3 million. However, they, too, were seen trading up on hedge by about 0.25 point.

MGIC shares fell 59 cents, or 7%, to $7.76 on Wednesday. Volume of 34 million shares was more than five time the norm.

The company reported net profit of $45.5 million, or 12 cents a share, which was up from $12.4 million, or 4 cents a share, in the year-earlier period but still 2 cents below analysts’ estimates.

MGIC also reported that net premiums written fell 9.8% to $213.4 million, and net premiums earned declined 13% to $207.5 million.

Total losses and expenses in the latest period fell 26% as losses incurred in the quarter fell 28% to $141.1 million.

Meanwhile, Radian’s 2¼% convertibles due 2019 were seen trading late in the day at 137.129, which was down 4.6 points, according to Trace data. The 2¼% convertibles are held on a delta in the mid 70% range, and those bonds were seen unchanged on the day on that basis.

The Radian 3% convertibles due 2017 were seen trading at 132.88 at the end of the session, according to Trace. That was down 4.2 points on an outright basis and also down on a hedged basis by 0.25 point, a New York-based trader said. That bond has a delta in the mid-70% range.

Shares of the Philadelphia-based mortgage insurer ended down 58 cents, or 4.2%, to $13.10 on Wednesday. Volume of 10.5 million shares was more than twice the usual turnover.

The bonds and shares of both mortgage insurance companies have been fairly busily traded in the last few sessions after proposed liquidity rules for mortgage insurers were unveiled by the Federal Housing Finance Agency.

If those new federal rules aimed at bolstering the companies in the event of another downturn are implemented, the companies have two years to implement them.

Puerto Rico stabilizes

In the municipals market, observers opined that the market seems to have absorbed the fallout from the Puerto Rico debacle from the past few weeks, triggered after the commonwealth’s legislature approved a measure that would make it easier for public corporations to restructure debt or even default.

“Trading in the [Puerto Rico general obligation] 8% bonds of 2035 was stronger yesterday [Tuesday], with an average block trade yield of 9.36%, compared to 9.53% on Monday and the 9.77% high point reached on July 3,” said Alan Schankel, managing director with Janney Montgomery Scott LLC.

“PR Electric Power Authority trading also showed improvement with block trades of the 5.25% of 2040 in the 45 price range, almost 4 points higher than average prices last week,” he concluded.

Rebecca Melvin and Sheri Kasprzak contributed to this review.

© 2015 Prospect News.
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