ATP Oil, Edison and Dynegy continue to power higher; Dex One bonds hang on, loans give ground

By Stephanie N. Rotondo and Paul Deckelman

Portland, Ore., March 14 - Distressed bonds were holding in well Wednesday, though "higher-quality stuff was off with the Treasury market," a trader reported.

"But it didn't drag our market down for the most part," he said. "Crappier stuff was better with equities."

However, he noted that there "weren't a lot of price movements."

"The market just keeps creeping up," said another trader.

In the energy realm, ATP Oil & Gas Corp. and Edison International Inc. remained firm, having gained momentum in the last week or so. Dynegy Holdings LLC's paper was "quiet, but still hanging in there," according to a trader. Edison in particular was a focus for another trader.

Meanwhile, Dex One Corp.'s bonds were trading thinly and mostly in odd-lots Wednesday, even as the company announced plans to buyback debt at a discount. However, that did give the company's bank debt a bit of a boost.

Energy sector strength

Energy credits continued to see active trading and recent momentum in ATP Oil & Gas and Edison International continued, traders reported.

At one shop, ATP's 11 7/8% notes due 2015 inched up half a point to 771/2. The trader said that Edison's debt was "continuing to rebound," the 7% notes due 2017 at 66 and the 7 5/8% notes due 2027 at 611/2.

The latter issue was up at least a point, the trader said.

The trader also saw Dynegy's 8 3/8% notes due 2016 at 701/4. He called that down half a point, but another market source saw the 7¾% notes due 2019 rising modestly to 69¾ bid.

Another trader was particularly keen on Edison's recent run-up.

The trader said that "the bond that keeps moving up every day, now" was Edison's 7½% notes due 2013.

He saw the bonds on Wednesday bid at "86 and change" - up from the mid-70s last week, "so they get stronger every day." Over $12 million of the bonds traded, putting them among the more active junk issues on the day.

He said that the power-generating company's bonds "went down dramatically" last week on market fears that Edison International's merchant-power unit "may not have enough money to pay off their debt - even after there was an infusion of debt by one of the hedge fund partners.

"They dropped so precipitously last week, that it was ridiculous."

He said the bonds had gone from the 90s, to the high 80s, "when they got a strategic partner in there - and then, boom, the bottom fell out," dropping the paper down to the mid-70s.

Investors got worried after Standard & Poor's announced at the end of February that it had lowered its corporate credit rating on Edison Mission as well as its subsidiaries, Midwest Generation LLC and Edison Mission Marketing & Trading, Inc., to CCC+ from B-, with a negative outlook, citing greater refinance risk in 2013 due to lower cash flow over the medium term and reduced liquidity.

The ratings agency warned that "we think the risk that EME will be unable to refinance its $500 million notes in June 2013 on reasonable terms is greater because of reduced future cash flows driven by low natural gas prices and lower company liquidity," and it put the company's ratings on CreditWatch negative pending further analysis.

S&P also cautioned that the company's decision to terminate its $564 million revolving credit facility, that was scheduled to mature this summer, "worsens its liquidity position, which we already viewed as less than adequate. Other factors negatively affecting liquidity build-up are much higher coal costs at Midwest Gen under new supply contracts and the $185 million refund payment in 2012 from EME to parent Edison International under their tax-sharing agreement."

But after bottoming following that pessimistic assessment - and against a backdrop of parent Edison International reporting a loss for the fourth quarter, versus a year-earlier profit, and citing losses racked up as Edison Mission as one factor - the bonds started rebounding once all of the negative news had been aired, the trader said, "and now, they're coming back nicely, in the 86-87 range."

Dex loans bid higher

Dex West, Dex East and R.H. Donnelley Inc. all saw their term loans bid higher in trading after parent company, Dex One, announced buyback offers for the debt, according to a trader.

The Dex West term loan was quoted at 61½ bid, 62½ offered, versus 61 bid, 62½ offered on Tuesday, the Dex East term loan was quoted at 51½ bid, 52½ offered, compared to 51 bid, 52½ offered previously, and the R.H. Donnelley term loan was quoted at 41½ bid, 42½ offered, versus 41 bid, 42½ offered, the trader said.

Meanwhile, Dex One' 12% PIK notes due 2017 were hanging around the 28 level, with only "a couple odd-lots" trading, a trader said.

Dex West's term loan buyback is for a cash offer size of $23.5 million in a price range of 60 to 64, Dex East's tender is for a cash offer size of $12.5 million in a price range of 50½ to 541/2, and R.H. Donnelley's repurchase is for a cash offer size of $40 million in a price range of 41½ to 451/2.

J.P. Morgan Securities LLC is leading the tenders, which all expire at 5 p.m. ET on March 21.

Parent company, Dex One is a Cary, N.C.-based marketing services provider.

Broad market ends stronger

Among other actively traded distressed issues, a trader said Bon-Ton Stores Inc.'s 10¼% notes due 2014 were steady around 82.

In other retailers, Sears Holdings Corp.'s 6 5/8% notes due 2018 were "the same" at 873/4.

The trader also saw Clear Channel Communications Inc.'s 11% note due 2017 moving up half a point to 763/4, while the 10¾% notes due 2017 gained almost half a point, finishing around 78.

At another desk, a trader said Lehman Brothers Holdings Inc.'s debt was stronger yet again, closing at 29¼ bid, 29½ offered.

NewPage Corp.'s 11 3/8% first-lien notes due 2014 were also deemed "very strong," trading up 2 to 3 points to 67.

And, Nebraska Book Co.'s 10% notes due Dec. 1 moved up to 62, from previous levels around 60, the trader said. Last week, the company announced a second amended reorganization plan, he said.

Sara Rosenberg contributed to this article

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