Distressed debt pressured by Malaysian Air crash; Verso exchange offer fails to entice holders

By Stephanie N. Rotondo

Phoenix, July 17 – The distressed debt market took a dive Thursday after news outlets reported that a Malaysian Airlines plane carrying 295 people went down in the Ukraine.

How the plane crashed was unclear, as it was reportedly flying in unrestricted airspace, but allegations were flying that it was shot down by pro-Russian separatists.

“The market has been heavy, today in particular,” a trader noted. “There is bid-wanteds galore.

“The consensus seems to be that things are down half a point, ETF names are down even more,” he said.

Verso Paper Corp. bonds drifted downward as the early deadline for an exchange offer tied to its NewPage merger expired. Based on the debt received by the deadline, the company has still not met its minimum threshold needed to complete the exchange and therefore the merger.

Meanwhile, 21st Century Oncology Inc. paper got “clobbered” during the session. A trader remarked that the name has “been quite volatile” recently, especially as Medicare and Medicaid said it could drop the amount paid to providers for cancer treatment equipment.

Verso exchange fizzling

Memphis-based papermaker Verso Paper reported the results of its early tender deadline in regard to its exchange offer for its 8 ¾% second-lien notes due 2019 and 11 3/8% notes due 2016.

The exchange is being done in connection with its proposed merger with Miamisburg, Ohio-based NewPage. Verso had previously launched the offer, but canceled it when it failed to get the required amount needed to move forward. After negotiations with creditors and NewPage, the minimum threshold amount was reduced to 75% from 82%.

However, as of the early deadline, the company had yet to meet the requirements.

On the news, the company’s debt soured.

One trader said the 8¾% notes fell almost 2½ points to 47 5/8. He also saw the 11¾% notes due 2019 down 2¼ points at 87.

Another market source placed the 8¾% notes at 47¼ bid, 47¾ offered, down from a 50 handle previously.

The source noted that the issue traded as low as 43 during the session.

As for the 11¾% notes, the source also pegged those at 87, which compared to 88½ bid, 89¼ previously.

The early tender deadline was midnight ET at the end of Wednesday. As of that time, $286.9 million of the 8¾% notes had been validly tendered, of which there is a total of $396 million outstanding. But only $17.7 million of the 11 3/8% notes had been tendered, of which there is $142.5 million outstanding.

“Verso continues to believe that the consummation of the exchange offers is in the best interests of all Verso stakeholders and is an important step toward completing our acquisition of NewPage,” said Dave Paterson, Verso’s president and chief executive officer, in a press release.

“If we cannot complete the exchange offers, Verso will be forced to consider alternative actions.”

Bondholders can still participate in the exchange, which expires midnight July 30.

21st Century Oncology dives

21st Century Oncology’s 9 7/8% notes due 2017 took it on the chin Thursday, as investors continue to be concerned about how Medicare and Medicaid will pay cancer treatment providers going forward.

A trader deemed the issue down 10 points form earlier in the week, placing the debt at 68¾. Another market source saw the issue at 68¾ bid, 69 offered, down from 79½ bid, 80 offered on Tuesday.

Earlier this month, the Department of Health and Human Services said that it could cut the amount Medicare and Medicaid pays to radiation therapy providers for equipment costs. That added to investors already concerned with 21st Century’s cash burn and the fact that it pulled an $88 million initial public offering earlier this year.

On Monday, Standard & Poor’s dropped its outlook on the Fort Myers, Fla.-based company, citing the Medicare and Medicaid proposals, noting that the company receives about 45% of its patient services revenues from those programs.

Fannie, Freddie gain

Fannie Mae and Freddie Mac preferred stock was boosted Thursday, as a trio of House Democrats proposed a bill to deal with the two agencies, both of which are currently under government conservatorship.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) gained 33 cents, or 3.07%, to $11.08. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) improved by 33 cents, or 2.91%, to $11.68.

Under the proposal – deemed the Delaney-Carney-Himes bill – an insurance program would be established in which private capital would be required to absorb 5% of any losses from the agencies. The idea behind that function is that it would help ensure responsible lending practices.

Also, the bill would wind down the two government-sponsored entities. However, the wind-down would apply only to current activities and the agencies’ government charter would be revoked. The bill would then allow for the firms to be sold as new entities, thereby maintaining access to the 30-year mortgage market, as well as providing affordable housing options.

Preferred holders could benefit if the bill is adopted, as while the government would require the companies pay back funds taken during the financial crisis – with interest – it would not wipe out stakeholders entirely.

However, as both Fannie and Freddie have paid back every cent they took during the mortgage meltdown – and then some – it is not clear how much more the government would receive.

© 2015 Prospect News.
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