Momentive bonds down again; Cengage plans exit financing; investors mull P.R. Electric rating

By Paul Deckelman

New York, Feb. 18 - The distressed-bond market was quiet on Tuesday, traders said, in line with the generally quiet overall high-yield bond market, with many participants absent as they stretched the just-concluded three-day holiday weekend into four days, while others were taking the whole week off to coincide with school closings in many areas.

One of the busier names was Momentive Performance Materials Inc., whose bonds have been steadily eroding over the past week in response to a warning from Standard & Poor's that the specialty chemicals manufacturer might be facing a default or debt restructuring in 2014.

Elsewhere, NII Holdings Inc.'s bonds - which were busily traded on Friday despite a lack of fresh news out about the company - quieted down considerably on Tuesday.

The retailing sphere, including credits such as RadioShack Corp. and J.C. Penney Co. Inc., was pretty much a mixed bag.

In the bank loan market, sources heard that bankrupt Cengage Learning Acquisitions Inc. will launch a $1.95 billion credit facility deal, with the proceeds helping to fund its exit from Chapter 11.

In the municipals market, investors were analyzing Tuesday's announcement by Fitch Ratings regarding the lowering of the Puerto Rico Electric Power Authority's power revenue bonds to junk status.

Momentive moves lower

A trader saw Momentive Performance Materials' bonds continuing to slide in the wake of last week's warning from Standard & Poor's that the Albany, N.Y.-based company will likely have to restructure its debt this year or else face a possible default.

A market source saw Momentive's 9% notes due 2021 down a deuce at 88 bid on volume of more than $11 million - one of the day's relatively busiest bonds. Its 11½% notes due 2016 ended off by 2¾ points at 65 with over $5 million of the bonds having changed hands by mid-afternoon, the source said.

At another desk, a trader noted that at 65 the latter bonds "were down a couple of points - they were right around 68 at the end of last week."

"At the end of the day, 65 was the trade - definitely lower."

But he said that "there wasn't a lot of volume - just four or five trades."

He meantime saw the 9s down 3 points.

The bonds have been falling since last Tuesday, when S&P dropped Momentive's credit rating to CCC- and gave it a negative outlook. The agency noted that free cash flow has been negative for nine quarters. In the third quarter alone, the company burned through $80 million.

With some $3.3 billion of outstanding debt on Momentive's balance sheet, S&P analysts Cynthia Werneth and Paul Kurias cautioned that "prospects for sufficient improvement to stave off a payment default or debt restructuring within the first three quarters of 2014 are dim."

They added that "we expect the company to continue to generate negative free operating cash flow, causing liquidity to dwindle."

Before that negative news came out, the 11½% notes had been trading around 76 bid, and the 9s were around 93.

NII quiets down

A trader saw NII Holdings' 7 5/8% notes due 2021trading around 47 bid, 48 offered, on "really no volume," while its 10% notes due 2016 were around a 66½ to 67 bid context, with about $5 million traded, which he called "pretty much unchanged from last week."

On Friday, market participants had noted brisk trading in the company's NII Capital Corp. bonds at stronger levels, even with the lack of any fresh news about the Reston, Va.-based company, which provides wireless service to customers in Mexico and South America under the Nextel brand.

They saw the 10% notes topping the Most Actives list, with over $16 million having traded by mid-afternoon, calling them up ¾ point at 66¾ bid, 67 offered.

And they saw over $12 million of the 7 5/8 notes traded, hanging around a 46½ to 48½ bid context, little changed on the day.

Retailers seen mixed

In the retailing sector, a trader saw RadioShack's 6¾% notes due 2019 trading in a 66 to 66½ bid context, although he said that the Fort Worth-based consumer electronics chain bonds "have sort of been there" in that area for a while.

He called the bonds up ½ point, but on "not much volume at all, just a couple of trades."

Plano, Texas-based department store operator J.C. Penney's 7.4% bonds due 2037 were seen by a market source having gotten as good as 67¾ bid, which he called up 1¼ point - while noting that it was only a bunch of small odd-lot trades, "nothing in size."

He saw Penney's 5.65% notes due 2020 up ½ point, at 71½ bid.

But he saw Hoffman Estates, Ill.-based department store operator Sears Holding Corp.'s 6 5/8% notes due 2018 down 1 point at 92 bid.

Cengage shops exit financing

In the bank loan market, sources said that Cengage Learning Acquisitions will hold a bank meeting at 1:30 p.m. ET in New York on Thursday to launch a $1.95 billion credit facility.

The facility consists of a $200 million ABL revolver and a $1.75 billion six-year first-lien covenant-light term loan talked at Libor plus 700 basis points with a 1% Libor floor and an original issue discount of 99, sources said.

Commitments are due on March 5.

Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Morgan Stanley Senior Funding Inc., Citigroup Global Markets Inc. and KKR Capital Markets are leading the deal that will be used to help fund the company's exit from bankruptcy.

Cengage is a Stamford, Conn.-based provider of teaching, learning and research services for the academic, professional and library markets.

Puerto Rico Power downgrade

In the municipals market, investors were reacting cautiously to Fitch Ratings' downgrade on $8.7 billion of Puerto Rico Electric Power Authority power revenue bonds to BB+ from BBB- previously, while revising the credit's outlook to "negative" from "stable."

PREPA's 5½% notes due 2017, which last week traded between 84 and 87 bid, actually bounced around a little in the lower 90s on Monday before going home quoted just under 88 bid. Trading was all smallish odd-lot remnants, with no round-lots seen.

In downgrading the Power Authority's debt to junk status, Fitch noted its recent downgrade of the Commonwealth of Puerto Rico's debt to BB from BBB- with a negative outlook due to "continuing challenges related to a weak economy, increasingly strained liquidity and deteriorating capital markets access. While PREPA's debt is not supported by the commonwealth, Fitch believes that these same challenges warrant a downgrade to below investment grade."

The ratings agency also cited the Power Authority's financial performance, which it said "has significantly weakened in recent years."

PREPA, it said, "remains challenged by slim margins, inadequate cash flow and minimal debt service coverage due to the effects of the economic recession, declining energy usage and growing account receivables. Leverage is high and has steadily risen since 2009 but is expected to stabilize through fiscal 2015."

And Fitch further said that "the most recent challenges faced by the commonwealth and PREPA could strain the authority's liquidity, limit access to the broader capital markets, raise borrowing costs and deter improvement in outstanding government and municipal account receivables, further pressuring PREPA's weak financial position."

Sara Rosenberg and Sheri Kasprzak contributed to this review.

© 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.