Fiscal cliff deal gives distressed bonds boost; Edison Mission, Axtel buck trend as debt dips

By Stephanie N. Rotondo and Paul Deckeman

Phoenix, Jan. 2 - Distressed debt started strong in 2013, following the trend set by the equity markets.

All of the strength in the first trading session of the new year was attributed to a last-minute fiscal cliff deal that maintained tax rates for 98% of Americans and increased the dividend tax rate to 20% from 15%.

"It was a mostly up-up day with the market," one trader said, noting the 300-plus point gains in the Dow Jones Industrial Average.

Despite the overall firm day, some names were slipping a bit.

Edison Mission Energy, for one, was weaker on the day. A trader said that the losses were due to a tax-sharing agreement that was part of the fiscal cliff deal. He said the deal was not necessarily positive for the recently bankrupt company.

Axtel SAB de CV was also slightly softer. The company is in process of a debt exchange that has been labeled a distressed exchange, which therefore led to Fitch Ratings cutting the company on Wednesday.

Edison Mission comes down

Edison Mission Energy paper was "down a couple points," a trader said, pegging the various issues around 51.

All the bonds tend to trade in line with one another.

The trader said the decline was based on a tax-sharing agreement that was part of the fiscal cliff deal.

"It has a negative impact on them," he said.

Another trader said that the company's several 7%-handle bonds were all trading in a 49-to-51 bid context, with the 7% notes due 2017 easily the most active, with around $20 million traded, making it one of the busiest junk credits in an otherwise fairly quiet session.

The Santa Ana, Calif.-based unit of Edison International Inc. filed for bankruptcy in mid-December after failing to make a coupon payment in November. As part of its reorganization plan, the parent company will sell off its stake, leaving it a standalone company.

Axtel slips post-downgrade

Fitch Ratings downgraded Mexican phone service provider Axtel on Wednesday in response to the company's announcement of a debt exchange.

The company's 9% notes due 2019 fell half a point to 531/2, according to a trader. However, he noted that the debt was still up from levels around 50 pre-exchange news.

Under the terms of the swap, Axtel will exchange $765 million of the 9% and the 7 5/8% notes due 2017. Holders that tender their bonds will receive 4356.5 million of new 7% notes due 2020, $26.3 million of 7% convertible notes due 2020 and a cash payment of $114.8 million upon early tenders.

Though Fitch downgraded Axtel because of the exchange - a typical move - the agency said it could revise the ratings after the swap is completed. The deal is expected to boost Axtel's leverage.

MGIC quiet despite stock rise

MGIC Investment Corp.'s New York Stock Exchange-traded shares zoomed by some 12.03%, or 32 cents, to end at $2.98, on volume of 11.2 million shares, or nearly triple the norm, with the Milwaukee-based mortgage insurance company extending the gains it notched last week on positive data from the S&P/Case-Shiller index of property values, which rose 4.3% last year.

But the trader said that while MGIC was up on the equity side, as was sector peer Radian Group Inc., "there's really nothing to talk about on the bond side with this thing."

He saw MGIC's 5 3/8% notes due 2015 quoted in an 83-to-85 bid context, "but I don't know how much traded. It's a tiny issue ($171 million), with not a whole lot left in it.

"It's just quoted - I'm not seeing any transactions."

He said that the company's 5% convertible notes due 2017 was trading around 78 bid, "but on small volume, just one trade, because the stock's up."

He said that the converts were up "3 to 5 points from last week - but over the last two or three weeks, it's traded four times.

"You can write a story about their equity - but not their bonds."

Cliff deal spurs gains

Among other distressed issues, a trader said Caesars Entertainment Corp.'s 10% notes due 2018 were trading busily and better, rising up to 68¼ on "almost $20 million" traded.

Another market source pegged the bonds at 68¼ bid, up 1½ points.

The first trader also saw Springleaf Finance Corp.'s 6.9% notes due 2017 putting on over a point to end at 911/4.

"That's a pretty good move for them," he said.

At another desk, a trader saw Eastman Kodak Co.'s 9¾% second-lien notes due 2018 inching up to levels around 83.

And, Clear Channel Communications Inc.'s 10% and 11% notes due 2017 firmed to "around 77," the trader said.

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