AMR's EETC debt drops sharply on proposed payment; Edison paper weakens; Supervalu dips again

By Stephanie N. Rotondo

Phoenix, Oct. 10 - There were "very few" upsides in the distressed debt market on Wednesday, a trader said.

One of the day's biggest downside movers was AMR Corp. The bankrupt airline asked the bankruptcy court to allow it to pay $1.3 billion of EETC securities - debt that is typically used for equipment purchases - at par plus accrued interest. If approved, the company will be allowed to disregard a make-whole provision included in the prospectuses of the bonds.

The securities in question dropped at least 5 points on the news.

Meanwhile, concerns about Edison International Inc.'s proposal to restart its San Onofre nuclear facility put pressure on the utility's debt.

Supervalu Inc.'s slide was also continuing in the midweek session, likely due to increased concerns about the company's ability to sell itself.

AMR EETCs drop

Fort Worth, Texas-based AMR, the bankrupt parent company of American Airlines, saw its EETC issues decline significantly Wednesday, as the company asked a judge to allow it to repay the securities without a make-whole premium.

One trader said the 13% notes due 2016 were down only 2 points at 1041/2. However, another trader said the issue had been trading around 108, but fell to 103 in Wednesday trading.

The second trader added that two other EETC issues, the 10 3/8% notes due 2019 and the 8 5/8% notes due 2021, had also fallen to around 103, which would be the call price if the payment is allowed sans the make-whole amount.

The trader also noted that all $1.3 billion that makes up the three issues are current on interest and are not part of the bankruptcy case.

AMR wants to call the issues at par plus accrued interest, which it would do by offering another EETC issue at a cheaper rate. The company is estimating that doing so will save it $200 million annual interest expense.

But the proposal hinges on whether or not the company can ignore a make-whole provision included in the debt - something the company has hinted will not be included in any new offerings.

"There's something in the wording that may allow them to just call them," a trader said, noting that the language included in the prospectus was a bit vague.

If the payment is approved, there could be broader implications, according to Gimme Credit LLC analyst Vicki Bryan.

Buyers of the new bonds should pay keen attention here, and not only to the dubious 'new' language in the bond terms," Bryan wrote in a report published Wednesday. "Indeed, all of AMR's creditors and anyone buying and selling EETCs should closely monitor this transaction because AMR seems to be writing its own rules."

Bryan notes that while EETC lenders are not averse to risk, their lack of aversion is based on the knowledge that they will be repaid "as agreed," which includes any call premiums. If companies can disregard such premiums at their will, it could result in an uptick in risk for the EETC sector as a whole.

Edison losing power

Edison International's Edison Mission Energy-linked debt was on the decline Wednesday, traders reported.

A trader called the 7% notes due 2017 down half a point at 481/2, on $16 million trading. The 7.2% notes due 2019 were called unchanged at 481/4.

But another trader said all of the issues, which tend to trade in line with one another, were down about a point, trading in a 48-49 context.

Last week, Southern California Edison, the operator of the shuttered San Onofre nuclear plant, submitted a proposal in which it would return the facility to 70% capacity. The plant has been closed since January after newly installed tubes were found to have significant wear on them, which could result in leakage.

A meeting was held in the San Onofre community on Tuesday in order to address local concerns about restarting the plant. Federal regulators from the Nuclear Regulatory Commission assured locals that the proposal had yet to be accepted and that they intended to take as much time as necessary to ensure the safety of the facility.

That could, however, be bad for business, as it has already been nearly a year since the plant first shut down. The closure also created problems with California's power grid, especially amid summer's peak electricity usage.

Supervalu slipping away

Supervalu's downhill slide continued Wednesday, as traders saw the grocery store operator's debt falling as much as 2 points on the day.

One trader saw the 8% notes due 2016 at 84, down a deuce.

"They continue to drift," he said.

Another market source placed the issue at 85½ bid, down nearly a point.

There has been no fresh news out on the company, but it has previously been reported that the company is not succeeding in finding a buyer for itself. Potential buyers have expressed interest in parts of the business, but Supervalu has maintained that it would prefer a sale of the whole company.

PDVSA mixed, ATP up

Petroleos de Venezuela SA's bonds were again dominating trading, a trader said.

About $90 million of the 8½% notes due 2017 changed hands, he said, seeing the issue fall over half a point to 88. Another $50 million each of the 9¾% notes due 2035 and the 9% notes due 2021 traded, with the former closing unchanged at 81 1/8 and the latter up a half-point at 831/2.

Another $27 million of the 5 3/8% notes due 2027 traded, slipping half a point to 60 5/8.

Elsewhere in the oil arena, ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 inched up to 19¼ bid, 19½ offered, according to a trader.

© 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.