Distressed space firms as trading volume weakens; oil rig explosion pressures ATP; TXU steady

By Stephanie N. Rotondo

Portland, Ore., Sept. 2 - Distressed bonds ended Thursday's session mostly better, though trading volume started to fade away toward the end of business.

"We did come close to a billion in turnover," a trader said. "But it still has the feel of a quiet subdued day."

But even as the market firmed, ATP Oil & Gas Corp.'s bonds couldn't hold on after news of another oil rig explosion in the Gulf of Mexico. Traders saw the bonds dropping about 2 points on the day in the wake of the news.

Energy Future Holdings Corp. was also weaker on the day, or at least unchanged. Those bonds have been on a steady decline for the last month as natural gas prices have plummeted.

On the gaining side, NewPage Corp.'s debt remained firm, with some issues adding as much as 4 points to their value. The paper began to move up on Wednesday after the company announced new third- and fourth-quarter guidance.

In other news, Skilled Healthcare Group Inc. said it had postponed a court hearing yet again, but that did little to help the company's term loan. And Blockbuster Inc. missed an interest payment, but the company's bonds showed little reaction.

ATP slips after explosion

ATP Oil & Gas' debt fell about 2 points on the day following news of another oil rig explosion in the Gulf of Mexico.

A trader said the 11 7/8% notes due 2015 fell to 80¼ bid, 80¾ offered from levels around 82 previously.

A Mariner Energy Inc.-owned oil rig about 80 miles off the cost of Louisiana went up in flames Thursday, and officials soon saw a mile-long oil sheen spreading in the water.

However, crews quickly shut down the seven active production wells once the fire started.

"It's nothing like [the BP plc disaster]," a trader said. That explosion resulted in a three-month-long oil leak that gushed over 200 million gallons of oil into the water.

"It's just a reminder that these things are fragile," he added.

TXU unchanged to weaker

Also in the energy arena, Energy Future Holdings - more commonly referred to by its former name, TXU Corp. - saw its bonds ending unchanged to slightly weaker.

"It's definitely down on the day, but there is still not all that much trading," a trader said.

He saw the 11¼% notes due 2017 slip a point to end around 48. The 10% notes due 2020, the 5.55% notes due 2014 and the 10¼% notes due 2015, however, were "all kind of where they were, certainly not noticeably weaker," at 97, 50 and 643/4, respectively.

Another trader said the bonds were "about the same," seeing the 10% notes around 97 and the 11¼% notes at 48 bid, 49 offered.

According to a Bloomberg article, TXU debt has fallen 10.1% over the last month as natural gas prices dropped 22% in August. The drop in the commodity's price could mean lower revenues for the Texas-based energy producer, which will put more pressure on its already over-leveraged balance sheet.

The company has about $25 billion in debt maturing through 2014.

NewPage continues to climb

NewPage bonds continued to firm in Thursday trading, just one day after the company announced improved guidance for the rest of the year.

Still, a trader noted that trading volume declined significantly, with just $20 million or so of the 11 3/8% notes due 2014 changing hands. That compared to volume somewhere around $100 million on Wednesday.

The trader pegged the issue at 89 5/8, which he called up a point. The 10% notes due 2012 meantime gained "another 3 or 4, which makes sense because the subs got more to catch up on." He saw the notes closing around 46½ on $10 million to $20 million traded.

At another desk, a trader called the 11 3/8% notes " a little bit better" at 891/2.

On Wednesday, the Miamisburg, Ohio-based papermaker released higher guidance for the third and fourth quarter. The company is expecting to hit EBITDA of between $145 million and $165 million, according to a regulatory filing. NewPage also estimates it will reach EBITDA of $90 million to $100 million for the third quarter.

Skilled loan steady

Skilled Healthcare Group's term loan was quoted at 94¼ bid, 95¼ offered, unchanged from Wednesday's closing levels, after news emerged that the company's court case has been postponed one additional day to Friday, according to a trader.

The trader remarked that early Wednesday afternoon the term loan was quoted at 93½ bid, 94½ offered, but then it popped up late in the day for no apparent reason. Word of the delay in the case didn't come out until Wednesday night.

As was previously reported, in 2006, parties alleged that some of the company's California-based facilities were understaffed and misrepresented the quality of care provided in their facilities.

Then in July, a jury ruled that the company should pay $613 million in statutory damages and $58 million in restitutionary damages to the plaintiffs, and before the punitive damages phase of the trial went on, the parties reached an agreement to enter into mediation to settle the lawsuit.

The Foothill Ranch, Calif.-based health-care services company later filed for mistrial or new trial on grounds of juror misconduct, but that motion was denied.

Blockbuster misses payment

After Blockbuster missed the Wednesday coupon payment on its 9% senior subordinated notes due 2012, the company's bonds "creeped up just the slightest bit higher," a trader said.

He quoted the 11¾% notes due 2014 at 52 bid, 53 offered and the 9% notes at 4 bid, 5 offered.

Both are trading flat, or without accrued interest.

The missed interest payment came as no surprise to the market, as the company had said it would likely not make the payment previously. Also, Blockbuster missed a July 1 payment on the 11¾% notes but secured a forbearance agreement that will expire Sept. 30.

That agreement prohibited the coupon payment on the 9% notes.

It is widely believed that Blockbuster will file for bankruptcy within the month. The company has posted loss after loss as consumers flock to the internet and other more convenient - and cheaper - methods of renting movies.

Sara Rosenberg contributed to this article

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