Distressed market quiet; Toys, Bombardier, Windstream off; Venezuela, PDVSA seen weak

By Paul Deckelman

New York, Oct. 20 – The week ended quietly on Friday in the market for underperforming and distressed company bonds, as several names which had firmed earlier in the week on news developments were closing out the week below those highs.

Traders said that Canadian aircraft manufacturer Bombardier Inc.’s paper – which had firmed smartly earlier in the week on the news that global aerospace giant Airbus will partner with Bombardier in developing the latter’s next generation of passenger jetliners – was seen having come off those hefty gains.

Likewise, Toy’s ‘R’ Us Inc.’s 2018 notes, which had zoomed 15 points earlier in the week on speculation the bankrupt retailer may try to raise capital via an IPO for its Asian unit, were seen losing ground on Friday.

Windstream Holdings Inc.’s bonds, boosted on Thursday on news of an exchange offer by the telecommunications company, gave back some of those gains on Friday.

In the emerging markets space, Venezuela’s sovereign debt and state-controlled oil monopoly Petroleos de Venezuela SA’s bonds were weaker amid investor worries on upcoming payments on the country’s and the oil unit’s debt.

Toys trades lower

A trader said that Toys ‘R’ Us’ 7 3/8% notes due 2018 were down ½ point, finishing at 42 bid, though on “just a handful of trades.”

Another trader saw those notes finishing a little below 42, calling that down around 9/16 point, with around $6 million having traded.

The notes jumped 15 points on Tuesday, rising to around the 43 bid level in heavy trading from prior levels in the upper 20s.

Those bonds shot up in response to news reports that the bankrupt Wayne, N.J.-based retailer of games, toys and other products for children (and through a separate division, products for babies and toddlers) is looking into possibly raising capital by doing an initial public offering for its growing and profitable Asian unit, which is not covered by Toys’ recent U.S. Chapter 11 filing.

Bombardier bonds lose altitude

For a second straight session, traders saw Bombardier’s various bonds retreating from their recent highs.

“It’s a name that’s been active,” one of the traders observed, “but they were a little weaker today.”

He saw the company’s 6% notes due 2022 ending around 100½ bid, which he called down ¼ to ½ point on the session, “as they gave back a little of their recent gains.”

“There were a bunch of trades in that,” said a second market source, who saw the notes down 1/8 point at 100 5/8 bid, with more than $16 million of those notes traded on Friday.

On Tuesday, those bonds – along with the rest of the Montreal-based aircraft manufacturing company’s capital structure – had shot up some 6 points in active trading. The 6% notes went out that day north of 101½ bid.

Bombardier’s bonds had pretty much held those gains on Wednesday but they started eroding on Thursday and continued to weaken on Friday.

The bonds had shot up on the news that the company had reached an agreement with pan-European aerospace giant Airbus on production of Bombardier’s next-generation product line, the C-Series 100- to 150-seat passenger jetliners.

Airbus will take a slightly more than 50% stake in the Bombardier unit that is making those planes, which is now owned 62% by Bombardier and 38% by the Canadian province of Quebec, which invested $1 billion in the project two years ago. Bombardier will cut its stake to around 38% and Quebec to about 19% to accommodate the Airbus participation.

Financial terms of the arrangement were not disclosed. But Bombardier hopes that Airbus’ deep pockets and its established track record with major airlines around the world will benefit sales of its new plane.

And with Airbus now a part of its team, the C-Series planes to be sold to United States-based carriers such as Delta Air Lines will have their final assembly work done at the Airbus factory in Mobile, Ala. rather than at Bombardier’s plants in Canada – this presumably getting around the threatened imposition by the U.S. Commerce Department of a tariff of as much as 300% on the planes, essentially quadrupling their cost to the buyer. Commerce recently announced imposition of the tariff in response to complaints by Bombardier rival Boeing Co. that the Canadian company’s bailout by Quebec and additional direct aid it gets from the British government for its U.K. manufacturing facilities is an improper subsidy, constituting an unfair trade practice.

Windstream gives up some gains

Another name seen giving up some of the hefty gains it had recorded earlier in the week was Windstream Holdings Inc., whose 2020, 2021 and 2022 notes had climbed between 3 and 4 points across the board on Thursday after the Little Rock, Ark.-based telecommunications company announced an exchange offer for those bonds.

But after that initial enthusiasm, a trader said, “people are digesting news of that exchange transaction, wondering whether it will work.”

He saw its 7¾% notes due 2021 falling to around 77 bid from a 78-79 bid context on Thursday, “so some things are down a point or so.”

At another desk, a trader said that those bonds were a point lower at 76¾ bid. But he said there were “only a handful” of large-sized trades on the session versus the more than $19 million of turnover recorded on Thursday.

Venezuela paper under pressure

In the emerging markets space, “people were getting nervous about next week’s amortizations” of Venezuela and Petroleos de Venezuela SA bonds.

There was “lots of supply,” an East Coast-based trader said on Friday.

The Venezuela and PDVSA bonds have gradually weakened for much of the week after Sunday’s regional elections in Venezuela revealed a resounding but unexpected victory for the ruling socialist party. On Monday, most of the curve was down by about 2 points.

The PDVSA notes due 2017, which mature Nov. 2, 2017, were seen at 92 bid, 94 offered on Friday.

A note that is amortizing next week, the PDVSA 2020 notes, was quoted at 83 bid, 84 offered. That bond has a one-quarter amortization next Friday.

The PDVSA 2026 notes have slumped to 28 bid, 29 offered though the Venezuela 2022 bonds were quite a bit better at 42 bid, 43 offered, but still down from 44 bid, 45 offered on Wednesday.

The Venezuela 2026 bonds were down at 37 bid, 38 offered and the Venezuela bonds due 2031 were about 50 cents better than that level at 37½ bid, 38½ offered.

Traders have put the political situation on the back burner – accepting that regime change is not going to come any time soon – and are currently worried about debt payments, including not only those due next week, but also a handful of notes that have coupon payments due from last week.

Payments due last week on five issues included a $28 million coupon payment for the Electricidad de Caracas bond that matures in 2018, $81 million for the PDVSA 2027s, $41 million for the PDVSA 2037s, $97 million for the Venezuela 2019s and $103 million for the Venezuela 2024s.

On Sunday, loyalists to President Nicolas Maduro’s ruling socialist party managed to win 18 out of 23 state governor posts. This was the opposite of the expectation that opposition candidates would win a majority of those posts.

-Rebecca Melvin contributed to this review.

© 2015 Prospect News.
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