21st Century active, strong after recapitalization news; Walter Energy drops ahead of earnings

By Stephanie N. Rotondo

Phoenix, July 30 – Distressed debt investors were keeping a keen eye on 21st Century Oncology Inc., just one day after the company said it had inked a recapitalization agreement with bondholders.

When the news first came out on Tuesday, the bonds popped as much as 5 points. The debt continued to post gains in midweek trading, rising as much as 7 points on the day.

Meanwhile, Walter Energy Inc. was on the weaker side. The company is slated to release its quarterly results before the market opens Thursday.

Elsewhere in the land of distressed, NII Holdings Inc. continued to see some action, though there hasn’t been any fresh news out on the Reston, Va.-based provider of Nextel mobile services in Latin America and Mexico.

A trader saw the company’s debt ending mostly lower, the 10% notes due 2016 slipping nearly a point to 28 and the 8 7/8% notes due 2019 falling just a touch to 36 5/8.

However, the 7 5/8% notes due 2021 put on over a point to end around 28½, he said.

21st Century on the rise

21st Century Oncology’s debt continued to gain ground as investors responded positively to news of a recapitalization agreement with noteholders.

A trader said there were “lots of trades” in the 9 7/8% notes due 2017, which closed up over 7 points at 85¼.

Another market source pegged the issue at 85 bid, 85¼ offered, up from 77¾ bid, 78 offered on Tuesday.

In a regulatory filing released Tuesday, the company said that a group of ad hoc noteholders agreed to support a plan that would require the Fort Myers, Fla.-based provider of radiation therapy to seek additional liquidity – either through an equity infusion or through the sale of subordinated debt – by Oct. 1. Alternatively, the company can also look to recapitalize its debt – which it might have to do if it cannot find additional capital by Aug. 31, according to the agreement.

If a recapitalization occurs, subordinated noteholders would receive 95% of new equity in the reorganized company, while existing stockholders would get the remaining 5%.

Stockholders would also receive warrants for another 10% of the equity.

Certain members of the noteholder group consented to provide additional funding in the interim. That funding will consist of an $8.5 million tranche A term loan – to be used for working capital and general corporate purposes – and a $9 million tranche B term loan, which will be used to fund purchases of equipment needed to conduct business.

Walter slips pre-earnings

Walter Energy paper was softer at Wednesday close, ahead of the company’s earnings release and conference call on Thursday.

One trader deemed the 8½% notes due 2021 off a point at 50, while the 9 7/8% notes due 2020 declined “almost 3 points” to 54.

A second source also deemed the 8½% notes a point weaker at 50. The source quoted the 9 7/8% notes at 53½ bid, 54 offered.

The Birmingham, Ala.-based coal producer’s earnings come on the heels of sector peer Arch Coal Inc.’s own quarterly report, which came out Tuesday.

For the quarter, Arch Coal reported a net loss of $96.9 million, or 46 cents per share. That compared to a loss of $72.2 million, or 34 cents per share, the year before.

On an adjusted basis, the loss was 46 cents per share. Analysts polled by Zacks Investment Research had predicted a loss of 48 cents per share.

Revenue declined 6.9% to $713.8 million, missing analysts’ expectations of $718.5 million.

Low coal prices remained a key driver of the wider loss, the company said. Ongoing competition from natural gas and transportation backlogs were also playing a role.

Still, the company ended the quarter with $1.25 billion of liquidity, including $1 billion in cash and equivalents.

“While Arch Coal’s second-quarter adjusted EBITDA was down significantly year over year, it was a big improvement from the first quarter and ahead of consensus expectations,” wrote Gimme Credit LLC analyst Evan Mann in a report out Tuesday.

Adjusted EBITDA was down 30% at $65 million, but estimates had placed the figure around $44 million.

EBITDA in the first quarter was $28 million.

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