ResCap debt plummets on potential bankruptcy news; Caesars decline continues; ATP notes weaken

By Stephanie N. Rotondo

Portland, Ore., Nov. 9 - It was a down day for the distressed debt world on Wednesday, as the market turned its eyes toward Italy and wondered what financial shoe would fall next.

Residential Capital LLC was "down big," a trader said, as the market reacted to news that parent company Ally Financial Inc. was considering putting the money-losing mortgage unit into bankruptcy. Market sources saw ResCap bonds plummeting at least 20 points on the day.

Also moving lower were Caesars Entertainment Corp.'s bonds. It was unclear, however, if the declines were due to a generally softer market or if they were because of the company's earnings announcement on Tuesday.

ATP Oil & Gas Corp. reported its quarterly financials on Wednesday. Though the oil exploration company reported a narrower loss, the bonds declined by about 6 points anyway.

ResCap paper topples

Ally Financial is said to be weighing a bankruptcy option for its money-losing mortgage lending unit ResCap.

The news was not taken well by ResCap investors and the company's bonds were therefore trading down significantly.

One trader said the bonds were "down big," losing over 20 points to end up in the mid-50s.

Another trader saw the 9 5/8% notes due 2015 falling 20 to 21 points to 58.

A third market source called the 8½% notes due 2013 down over 40 points at 55 bid.

ResCap has reportedly hired Centerview Partners LLP to advise it on a restructuring plan that could potentially include a bankruptcy filing. Ally has hired Evercore Partners Inc. to advise the parent company.

The U.S. Treasury Department is also reported to be getting involved, given that it owns a 74% stake in Ally. The Treasury attempted to sell ResCap last year but ultimately failed to find a buyer.

ResCap posted a loss of $442 million in the third quarter.

Caesars remains weak

Caesars Entertainment's debt, which had lost value on Tuesday after the company reported earnings, continued to lose ground in the midweek session.

It was not clear, however, if the losses were because of the tone of the market or a continued response to the quarterly results.

A trader called the 10% notes due 2018 down 3½ points to 69. Another market source said the issue had dropped 4½ points, also to around 69.

A third source saw the debt down 3 to 4 points at 69 bid, 70 offered.

On Tuesday, the Las Vegas-based casino operator reported a loss of $164 million, which compared with a loss of $164.8 million the year before.

Revenues fell 1.5% to $2.25 billion.

The company blamed the weak revenues in part on its Atlantic City market, which has not only been experiencing a decline due to new gambling centers in Pennsylvania and New York, but also suffered through Hurricane Irene shortly before Labor Day.

Las Vegas revenues, however, were up 2.9%.

ATP slips despite numbers

A trader said ATP Oil & Gas' 11 7/8% notes due 2015 were down 6½ points after the company reported earnings.

He pegged the issue around the 77 level.

The Houston-based oil exploration company posted a net loss of $5.6 million, or 11 cents per share, versus a loss of $58.4 million, or $1.15 per share, the year before.

The company said the narrowed loss was due to increased production from new wells. The company is relying heavily on said new wells to increase revenues in order to raise its cash flow.

In September, Moody's Investors Service has claimed there was a "high likelihood" the company would have to restructure, given its high debt levels. For its part, the company has said it should have more than enough funds to service its debt obligations.

Broad market shudders

Among other distressed credits, a trader said MF Global Holdings Ltd.'s 6¼% notes due 2016 were down 3½ points to end around 35.

Another trader said the paper was "a bit lower" at 35 bid, 36 offered.

The first trader also saw Travelport Ltd.'s 9 7/8% notes due 2014 dipping 3½ points to 631/2.

At another shop, a trader said NewPage Corp.'s 11 3/8% notes due 2014 were down "2 points or so" at 72.

And, Dex One Corp.'s 12% notes due 2015 were seen at 25 bid, 27 offered.

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