Distressed bonds weak as oil drops, IMF forecasts cut; Caesars debt busy amid noteholder boon

By Stephanie N. Rotondo

Phoenix, Jan. 20 – The distressed debt market was dragged lower on the first session back from the long weekend, as oil prices remained in retreat and the International Monetary Fund lowered its global growth forecast by the most in three years.

Additionally, earnings season was in full swing, prompting one trader to opine that “we’ll probably see some volatility” as more results come out.

As for the IMF report, it cut its 2015 global growth forecast to 3.5%, down fro 3.8% in October.

Growth for 2016 was then pegged at 3.7%, down from 4% in the previous report.

In distressed dealings, traders said Caesars Entertainment Corp.’s 10¾% notes due 2016 were trading actively – and better – as investors digested news out Monday that could impact the company’s restructuring plan.

Meanwhile, FXCM Inc. was “by far the most notable distressed name,” a trader said Tuesday. The company’s convertible bonds have been on a ride since Friday, when the company said it could be facing a multitude of customer losses as the Swiss franc gained value.

Caesars busy, better

Caesars Entertainment’s 10¾% notes were called “quite active” by a trader on Tuesday.

The trader said the debt rose “almost 1½ points” to close around 21 5/8.

Another trader also deemed the issue “pretty active,” seeing the notes trade with a 21 handle.

On Monday, U.S. District Judge Shira Scheindlin gave credence to junior noteholders’ claims that Caesars was looking to thwart their recovery prospects by moving around assets. The judge – overseeing a previous lawsuit filed by noteholders in Manhattan – said that such a transfer was a violation of the federal Trust Indenture Act of 1939.

While Caesars itself believes that it did no wrong by eliminating guarantees on junior debt back in August, it could give lower-ranking creditors more clout as they look to fight against a plan that would give first-lien noteholders a 92% recovery and junior noteholders barely more than 10%.

FXCM takes a ride

FXCM’s 2.25% convertible senior notes due 2018 weakened in active trading on Tuesday following the release of details on the New York-based foreign exchange company’s financing arrangement from Leucadia National Corp.

FXCM shares, which were halted on Friday pending news, reopened Tuesday and promptly collapsed nearly 90% to as low as $1.47.

FXCM was a primary focus of the convertibles market on Friday after the company warned of massive client losses tied to a spike in the Swiss franc.

On Tuesday they ended the session in the low to mid 40s after initial trades around 50. On Friday, they ended 49 bid, 50 offered. The bonds were previously around 95.

“Terms of the bailout are dictating price. People thought Leucadia was going to give them a free ride, I guess,” a New York-based trader said.

A trader said FXCM was “by far the most notable distressed name” in Tuesday trading, seeing the convertible notes trading into the low- to mid-40s.

That compared to opening levels in the mid-50s, he said.

“It was a roller coaster ride from where it was,” he added.

Under the Leucadia financing agreement, which allowed FXCM to meet its regulatory capital requirements and continue normal trading operations, a new subsidiary was formed into which FXCM Holdings LLC contributed all of the equity interest owned to FXCM Newco LLC.

The loan has an initial interest rate of 10% per year, rising by 1.5% per year each quarter for as long as it is outstanding to a cap of 17%. The loan is subject to various conditions and terms such as requiring mandatory prepayments and requiring lender consent to merge, dissolve, or sell or lease assets.

Rebecca Melvin contributed to this article

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.