TXU trades around after second-lien plan nixed; Verso gyrations continue after ratings cut

By Paul Deckelman

New York, June 24 – Activity in the distressed-debt market was seen as sparse and mostly directionless on Tuesday, as new-issue news continued to dominate the larger junkbond market, traders said.

However, here and there, activity was seen among distressed bonds.

There was some trading in the various bonds of Energy Future Holdings Corp., as investors tried to analyze the latest developments in the bankrupt Dallas-based utility operator and merchant power generation company’s ongoing saga.

Specifically, the company formerly known as TXU Corp. formally rejected a $2.3 billion strategic financing and restructuring proposal from investor NextEra, Inc. and a group of second-lien noteholders, opting instead to move forward with the proposal submitted by holders of its unsecured senior toggle notes.

There was also some activity – with some bonds higher and others lower – in Verso Paper Corp. paper in the continued aftermath of Friday’s move by Moody’s Investors Service to downgrade its debt by three notches, as the Memphis-based specialty papers manufacturer struggles to complete its planned $1.4 billion deal to buy rector peer NewPage Holdings Inc.

And traders saw continued erosion of the bonds of Las Vegas-based gaming giant Caesars Entertainment Corp.

In the convertibles market, Web.com Group Inc.’s 1% convertibles due 2018 slid about 13 points against a 20% plunge in the underlying shares of the Jacksonville, Fla.-based global domain name register. The shares tanked on news that Google is entering the domain registration business with an invitation-only beta website.

However, on a dollar-neutral, or hedged, basis, the bonds expanded by about 0.5%, assuming a 70% delta, a trader said.

Market seen quiet

A trader who specializes in the bonds of distressed companies opined that there was “not a lot of exciting stuff” going on during Tuesday’s session.

He said that much of the focus in the larger junk bond market was concentrated on the steady barrage of new issues, which totaled $3 billion on Tuesday, up from Monday’s $854 million, as borrowers and their underwriters rush to get their deals done ahead of the looming end of the month, the calendar second quarter and first half, as well as the anticipated slowdown next week in the run-up to the July 4th market holiday.

TXU trades around

Bonds of Energy Future Holdings – the troubled Texas utility operator and merchant power provider formerly known as TXU Corp. – “were trading around,” the market source said.

He saw the 11¾% second-lien notes due 2022 issued by its Energy Future Intermediate Holding Co. LLC subsidiary get as good as a 126 to 127 context on Tuesday, well up from prior levels in the lower 120s previously.

One of the more active credits in the company’s complex capital structure – its Texas Competitive Electric Holdings Co. LLC 10¼% notes due 2015 – were seen having moved up to just under the 13½ bid level on mid-afternoon volume of over $10 million, putting them fairly high on the junk Most Actives list for the day.

He noted that the latter bonds “haven’t traded since last week, and they traded [then] with a 12-handle. They were trading at 13½ today.”

“I guess that was a decent move, given the low dollar price nature of that bond,” he added.

Elsewhere among the TXU credits, Energy Future Intermediate’s 10% notes due 2020 edged up to 9¼ bid from 9 1/8 previously.

Texas Competitive Electric’s 15% notes due 2021 firmed to 44 bid from 42¾ at the end of last week.

The TXU paper was bouncing around at higher levels as the company – which had been acquired in a $46 billion leveraged buyout in 2007 but which was forced into bankruptcy earlier this year, staggering under that giant debt load – rejected a $2.3 billion strategic financing and restructuring proposal from investor NextEra and a group of second-lien noteholders.

According to a preliminary objection filed Monday with the U.S. Bankruptcy Court for the District of Delaware by Computershare Trust Co., NA and Computershare Trust Co. of Canada, the trustee for Energy Future Intermediate Holding’s second-lien notes, EFIH, had agreed to negotiate with the second-lien noteholders after they submitted an alternative financing proposal on May 12.

However, shortly after advisers to the EFIH second-lien group met with the company’s management and representatives on May 30 to discuss the proposal, EFIH asked parties to submit their “final and best” offers for second-lien financing.

The joint financing proposal and new restructuring plan was submitted by NextEra and the noteholders on June 18 and revised on Monday “to further improve the terms and address the few concerns the debtors’ advisors had mentioned.”

Computershare said it was told that EFIH intends to move forward with the proposal submitted by holders of its unsecured senior toggle notes.

But Compushare asserted that the joint proposal from NextEra “is superior both in cost of financing and value to EFIH’s estate and its creditors.”

Specifically, the trustee said the second-lien/NextEra proposal includes significantly lower interest and rates, superior enterprise valuation of equity conversion/investment, enhanced recoveries to all key creditor constituencies, facilitation of the debtors’ tax strategy and improved executability (see related story elsewhere in this issue).

Verso stays busy

Elsewhere, a trader said that Verso Paper’s 11¾% 1.5-lien notes due 2019 “continue to creep up.”

He saw the bonds on Tuesday “moving towards the high 80s, and trading at 88 today.”

In contrast, he said, “yesterday [Monday], they were around 85 – so those continue to go up.”

At another shop, a trader pegged those bonds at 87 5/8 bid going home, which he said was a 2 3/8-point gain on the session.

He said that round-lot volume of more than $10 million “put it among the most actives.”

On the other hand, Verso’s 8¾% second-lien notes due 2019, recently languishing in the mid-40s, slid to 40¼ bid on Tuesday, a drop of nearly 3 points. Volume was more than $9 million.

Verso’s New York Stock Exchange-traded shares, meantime, dipped by 15 cents, or 7.65%, on Tuesday to end at $1.81, although volume of about 79,000 shares was only about one-fourth of the usual daily turnover in the name.

The bonds and shares have been gyrating around since Friday, when Moody’s Investors Service cut Verso’s ratings to Caa3 from B3 and warned that it expects a distressed exchange or a bankruptcy filing if Verso is unable to close on its previously announced $1.4 billion deal to buy sector peer NewPage Holdings.

Moody’s further said that Verso has been unsuccessful so far in obtaining a distressed debt exchange that’s a prerequisite for the deal, and still must gain federal regulatory approval for the transaction, which was announced back in January.

Caesars seen lower

A trader said that Caesar’s Entertainment’s 10% notes due 2018 “keep dipping.”

He said that the big gaming operator’s legacy Harrah’s Entertainment Operating Co. bonds were trading Tuesday at 38½, which he called “down a little bit.”

Another trader said the bonds had dipped to 38¾ bid, calling that down ¾ point on the session.

And yet another market source saw them going out at 39¼ bid, calling that a ¾ point loss.

Web.com seen lower

In the convertibles market, Web.com’s 1% convertibles due 2018 traded down to 103.5 bid, 104.5 offered at the end of the session with shares at $27.00, pushed down by the news that rival Google is entering the domain registration business with an invitation-only beta website.

Earlier they traded down to 107.8, which was down 10.5 points, with the underlying shares down $7.53, or 22%, at $27.07.

However, on a 70% delta, the notes expanded 0.5 point, a trader said.

Web.com Group brought the $259 million of 1% senior convertible notes due 2018 last August. The notes were sold at the discounted price of 98.5.

Rebecca Melvin and Caroline Salls contributed to this review.

© 2015 Prospect News.
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