Fed minutes result in mixed results for distressed debt; Caesars bonds fall on default notice

By Stephanie N. Rotondo

Phoenix, Oct. 8 – The distressed debt market was mixed on Wednesday, as investors digested the latest minutes from the Federal Reserve.

Those minutes – which showed the central bank had no immediate plans to raise interest rates – also helped the equity markets regain Tuesday’s losses.

Of the day’s dealings, Caesars Entertainment Corp.’s 10% second-lien notes due 2018 were under pressure, though this time on news the company had been served with a default notice.

The debt has been drifting lower for weeks, but with no news to act as a catalyst.

Meanwhile, Endeavour International Inc. was circling the drain, as the company held last-minute negotiations with noteholders to come up with a refinancing plan, lest it should be forced into Chapter 11 protections. The talks come after the company missed a coupon payment in early September.

Caesars slips on default notice

Caesars Entertainment received a notice of default late Thursday from holders of the 10% second-lien notes due 2018, weighing further on the debt that has been steadily declining of late.

One market source pegged the bonds at 21½ bid, down 1½ points. At another desk, the paper was quoted at 20 3/8 bid, 20½ offered, compared to levels around 22 previously.

Wilmington Savings Fund Society, a trustee acting on behalf of holders of $3.7 billion of the 10% notes, issued the default notice, alleging that a transfer of assets to more senior bondholders and bank lenders – without giving them any claims as well – was the basis for the action.

The Las Vegas-based casino operator has 60 days to cure the action before being in full-on default.

Caesars has been in talks with senior creditors to reduce its $24.2 billion debt load. This follows the company’s sale earlier this year of four properties to an affiliate – the said transfer of assets that the 10% bondholders are referencing.

Endeavour on borrowed time

Endeavour International’s forbearance with noteholders is slated to expire at the end of Wednesday, leaving investors wondering if a deal will get hammered out or if the company will be forced to file for bankruptcy.

The Houston-based oil and gas exploration and development company missed an approximately $33 million interest payment on Sept. 2, triggering a 30-day grace period that was slated to end Oct. 1.

But holders of the company’s 12% first priority notes due 2018, the 12% second priority notes due 2018 and the 6.5% convertible senior notes due 2016 gave the company a minor reprieve on Tuesday, giving the company until 11:59 p.m. ET on Wednesday.

However, there are no assurances that a deal will get done.

On the heels of that news, one trader said the 12% first priority notes were “down a touch” at 65, though he noted that he had not seen much in the 12% second priority notes, which have been “offered at 20 for the past couple of trading days,” albeit with no bids.

Another source deemed the first priority debt unchanged at 65.

As for the company’s equity (NYSE: END), trading was halted Tuesday, leaving the stock at 15.65 cents per share.

Mining names mixed

Elsewhere in the mining space, the results were mixed for the day, echoing the trend of the overall market.

MolyCorp Inc.’s 10% notes due 2020 were seen inching higher, ending around 72½, a trader said.

But coal producer Alpha Natural Resources Inc. saw its 6¼% notes due 2021 dive 2½ points to 52½ bid.

In Quicksilver Resources Inc., the company’s bonds were softer on the day.

The 9 1/8% notes due 2019 were seen around 58, while the 7 1/8% notes due 2016 finished around 32.

Fannie, Freddie weaken further

There did continue to be weakness in Fannie Mae and Freddie Mac paper. The preferreds have been trending toward the downside since Sept. 30, when a federal judge dismissed investors’ lawsuits claiming the government’s consignment of a majority of profits was illegal.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) traded down a nickel, or 1.47%, to $3.35. Freddie’s fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) declined 16 cents, or 4.55%, to $3.36.

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