Coal bonds steady despite stock slide, though converts fall; ATP bucks lower trend; PDVSA busy

By Paul Deckelman

New York, May 30 - The energy sphere seemed to be the place to look on Wednesday when it came to activity in distressed or underperforming credits.

There actually wasn't much trading going on in the bonds of struggling coal companies such as Patriot Coal Corp. and James River Coal Co. - although those companies' equity, and that of other sector peers, was hit hard during the session.

However, James River's convertible notes, which closely track its stock, accordingly were on the slide as well.

Elsewhere among the energy credits, traders said that ATP Oil & Gas Corp.'s recently battered bonds seemed to buck an overall negative junk market trend and were up by at least a point or more on the day.

Also among the oilers, traders saw brisk volume, though at lower levels, in the bonds of Venezuela's state-run oil monopoly, Petroleos de Venezuela SA.

Outside of the energy realm, Canadian directory publisher Yellow Media Inc. was taking a hit following an analyst downgrade on Tuesday.

Coal bonds steady

A day after the coal sector was seen better, helped by a Goldman Sachs equity upgrade of some of the coal mining companies, the miners were back in the hole on Wednesday - at least on the equity side of the fence, where Patriot Coal Corp.'s New York Stock Exchange traded shares lost 22 cents, or 8.46%, to end at $2.38, on volume of 4.33 million shares, although that was only about half the usual turnover.

That slide followed UBS and CRT Capital Group putting out negative signals about the St. Louis-based coal operator. UBS cut Patriot's price target by more than 50%, down to $2.50 from $5.50.

CRT meanwhile downgraded Patriot's rating to "fair value," citing "heightened uncertainty regarding the company's refinancing status and weak cash flow outlook."

But in the high-yield precincts, traders said, there was little response - the problems of the equity were essentially a non-story.

"I didn't see much activity," a trader said. "It was pretty much unchanged."

He said that he "didn't even see hardly any trading" in Patriot's 81/4s due 2018. He said that there had been just one trade, that left the bonds at 50½ bid.

"I'd almost say they were unchanged," he said, noting that the bonds had been trading right around a 50 to 51 range over the previous few days.

"There was no real volume in them."

"Patriot's bonds weren't doing much - their stock was much more active," a second junk bond trader said.

He said that the same was holding true of Richmond, Va.-based coal producer James River Coal's bonds, such as its 7 7/8% notes due 2019.

Those bonds were seen having gotten up to 60 bid from prior levels about 59, but only in small odd-lot trades.

"The Patriot and James River bonds weren't doing anything."

Yet another trader theorized that "last week, the bonds ran ahead of the stock. The coal bonds led stock on the way dawn, so now it's the turn of the stock to lead."

James River converts crushed

While traders in straight junk bonds were regarding the equity gyrations of Patriot Coal and James River as essentially a non-story, it was quite a different matter in the convertibles market.

There, James River Coal's 3 1/8% convertible notes due 2018 were "lower by a couple points," a trader said, as the stock hit "another yearly low."

James River's Nasdaq-traded shares dropped 38 cents, or 12.75%, to $2.60, while the convertibles were seen in a 25-30 context.

The trader remarked that there was "not much going on" in the convertibles, opining that the lack of activity was due to fear about the company, as well as the sector as a whole.

"The company made what turned out to be a horribly timed acquisition last year," said one analyst in an e-mail to Prospect News. "It's funny that a year ago, most people were worried that the company might be taken over at $30 per share.

"That was then and this is now."

ATP bucks the trend

Among the generally easier stance where most of Wednesday's high yield bonds ended up, there were a few exceptions, one of them being Houston-based offshore energy exploration and production operator ATP Oil & Gas Corp. Its 11 7/8% second-lien senior secured notes due 2015 have recently been trading as low as under the 50 bid level.

However, on Wednesday, those bonds were seen as high as 54 bid, "bucking the trend," a trader said.

Clearly they were better than Tuesday's levels, which hovered around a 50-51 context, a trader said, noting that over $15 million of the bonds had changed hands, making it among the busiest non-Ford issues.

There was no fresh news out that might explain the rise.

Busy PDVSA loses ground

Also among the energy credits, a trader said that Petroleos de Venezuela SA "was still active today."

He saw the Caracas-based Venezuelan state oil monopoly's 9% notes due 2021 at 69 bid, 69¾ offered, calling that "down a couple of points."

On Tuesday, those bonds had mostly traded in a 71 bid context, although they ranged anywhere from a low of 68 bid to highs around 72, before ending around 71.

"I saw it trade a lot," he said, estimating volume in the issue of around $30 million, although that was off from the more than $50 million which had changed hands on Tuesday.

He also saw PDVSA's 8½% notes due 2017 trading down around 1 point in the 79-80 area.

He said volume was around $27 million to $30 million, declaring that "between those two issues," well north of $50 million had traded.

Yellow Media sees selling

Away from the energy arena, a trader said there was "selling" in Yellow Media bonds just one day after DBRS downgraded the Montreal-based phonebook publisher.

The trader placed Yellow's bonds at 52 "pretty much across the board."

On Tuesday, rating agency DBRS said it had cut its issuer rating on Yellow Media to CCC from B (low). The agency said the trend remained negative.

The downgrade was based on a decline in print revenues and an expectation that the declines would continue at a rapid pace.

-Stephanie N. Rotondo contributed to this report

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