Ameren Energy debt dives on ratings downgrade; Powerwave, School Specialty file for bankruptcy

By Stephanie N. Rotondo and Rebecca Melvin

Phoenix, Jan. 28 - Distressed debt trading got off to a slow start Monday, though investors kept a keen eye on the new issue calendar.

"Nothing was really all too active," a trader said.

Ameren Energy Generating Co. made the day's big loser list, following a downgrade from Fitch Ratings. Earlier this month, the company said it was leaving the merchant generating business, due to market conditions.

Away from Ameren, the market continued to trend on the firm side, with names like Ambac Financial Group Inc. and MF Global Futures Ltd. rising.

A trader saw Ambac's debt - which trades on top of one another - move up to 46, while MF Global's benchmark 6¼%/7¼% notes due 2016 improved to around 67½ bid, 68 offered.

Meanwhile, two convertibles issuers declared Chapter 11 bankruptcy on Monday: School Specialty Inc. and Powerwave Technologies Inc.

Neither School Specialty nor Powerwave's three convertible bond issues were heard in trade as yet after the filings.

"It's still price discovery mode," a trader said.

Ameren drops on downgrade

Ameren Energy Generating's bonds were down as much as 4 point on the day following a rating downgrade from Fitch.

One trader saw the 6.3% notes due 2020 fall to levels around 60. Another trader placed the issue at 62, down from 66.

The second trader also saw the 7.95% notes due 2032 drop to 63 from 65 on Friday.

A third trader said he saw the 7.95% notes offered at 61 early in the session, which compared to previous trades in the mid-60s.

"So it's down a few points," he said.

Fitch revised its rating on the company to CC from B-, citing the "belief that, absent parental support or access to external borrowings, the merchant's business model, in the long-run, is not sustainable.

"The ratings recognize that Genco's parent holding company, AEE, no longer intends to provide financial support to Genco, including funding for the 2018 debt maturity of $300 million, and the significant capital spending required at the Newton coal-fired plant to be compliant with Illinois environmental regulations."

Earlier this month, Ameren said it was getting out of the merchant generating business, due to market conditions. The company has the opportunity to sell one of its three natural gas fired plants in Illinois at the greater of $100 million or fair market value.

"While the cash inflow from monetizing the plants would provide financial flexibility, the core fundamentals of the business remain weak, driven by sustained depressed power markets, prolonged low natural gas prices, and anemic customer demand," Fitch said in a statement.

Still, Fitch believes leaving the merchant business behind would be credit positive, allowing it to focus on growing its regulated utilities.

Powerwave, School Specialty file

Powerwave Technologies has three convertible bond issues, a 2.75% convertible due 2014, a 1.875% convertible due 2024, and a 3.875% convertible due 2027. School Specialty has 3.75% convertibles due 2026.

"Nothing's traded," a trader said.

The School Specialty convertible has a $157.5 million original face. The bonds were seen around 29.

The Greenville, Wis.-based school supplies company had faced headwinds the last few years given municipal and state budget cutbacks and uncertainty related to of transitioning to state standards.

The company violated covenants several years ago with the lender that is going to provide debtor-in-possession financing and the bankruptcy involve what is known as a 363 sale in which a stalking horse bidder establishes itself and an auction is held, a convertibles analyst said.

Powerwave filed Monday for Chapter 1 bankruptcy protection after ballooning losses last year. The company listed assets of $213.5 million and liabilities of $396.1 million, according to documents filed in the U.S. Bankruptcy Court in Wilmington, Del.

The company reported a net loss through the first nine months of 2012 of $153.1 million, compared with a net loss of $35 million in the same period a year earlier.

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