Distressed bonds better amid stronger junk; ATP gains on liquidity news, Bon Ton also better

By Paul Deckelman

New York, March 13 - Bonds of underperforming or distressed companies were seen mostly better on Tuesday amid a generalized upturn in the junk bond market, which, in turn, was given a boost by higher equities.

Among the names seen improving was offshore energy operator ATP Oil & Gas Corp., whose bonds have recently been on a tear due to an oil discovery in the Gulf of Mexico. The company's paper got added impetus from the announcement of enhanced liquidity on the expansion of its first-lien credit facility.

Bon Ton Stores Inc.'s bonds continued their recent string of gains, which has seen the department store operator's paper firm smartly into the 80s from prior levels in the 60s, helped by improved sales last month and bullish cash-flow predictions.

Fellow retailer Sears Holdings Corp.'s bonds were meantime seen little changed on the session, but in active dealings. This was also the case for Springleaf Finance Corp. and Exide Technologies.

Traders saw upside in bankrupt power generating company Dynegy Holdings Inc.'s paper.

But European refiner Petroplus Holdings AG's bonds continued to lose ground amid uncertainty over the insolvent company's future and what kind of recovery debtholders can expect.

ATP gains once more

Among specific names, ATP Oil and Gas's 11 7/8% second-lien notes due 2015 "ended up a good amount," a trader said, seeing the Houston-based offshore energy E&P company's paper rising to a 76-77 bid range before finally going home at 77 bid, which he called up 3 points on the day.

"They are just lovin' life," he said.

He saw "good volume" in the credit, in the mid-teens.

A second trader said that the bonds got a late start: "They didn't trade till 10 [a.m. ET], opening at 75, but then hitting a high tick around 76½ bid, up several points."

He saw a bunch of "smaller trades between 75 and 761/2, which is not the kind of activity you usually see in the name," normally the province of round-lot transactions. "But it's trading at its high."

In late February, the bonds were trading down around a 62-63 context, but they jumped to 66-67 in active dealings on Feb. 27, when the company announced that it had struck oil at one of its wells in its Telemark Hub out in the Gulf of Mexico.

Later that same week, the bonds firmed to about a 68-69 context, when the company estimated that production from the newly active well could rise to 7,000 barrels of oil and equivalents a day.

The bonds rode that momentum all last week and then were firming on Monday and again Tuesday of this week, helped by another piece of positive news. ATP announced late Friday that it had augmented its liquidity opposition.

The company said that it had increased its first-lien credit facility to $155 million from $140 million and had cut its interest rate on those borrowings to 8.75% from a floating 9%. Funding of the newly available amount is scheduled after the filing of the company's 10-K.

It also said that as a result of asset sale transactions, ATP has received additional liquidity of some $60 million so far this month, and during the remainder of the month, the company expects to receive additional liquidity in excess of $100 million from asset sale transactions that are scheduled to close shortly.

Bon-Ton bonds continue rise

Elsewhere, a trader said that Bon-Ton Stores' 10¼ notes due 2014 saw "huge volume today," as over $35 million of the York, Pa.-based department store operator's notes changed hands. He saw the bonds trading between an 82 and an 84 bid range.

While there were some fluctuations - at 82, he said the bonds would actually be down a point from Monday's levels - "still they have an 80-plus handle, so they're holding up on a lot of volume."

"They continue to be very active," a second trader said, "and up again." He also saw them going out in an 82-to-83 bid context.

A market source said that taking all trades into account, the bonds actually eased by three-quarters of a point, to 821/2. He noted that the bonds "had been up all week," so some pullback was inevitable.

But throwing out all of the smallish odd-lot pieces and just concentrating on the more representative round-lot transactions, the story is quite different, which the bonds zooming more than 3 points Tuesday to that 82½ bid level from their last prior round-lot transaction, last week, at 79 bid.

That continued the strong momentum seen last week when the bonds had firmed smartly over several days into the mid-to-high 70s from the mid-60s, after the company said that for the four weeks ending Feb. 25, it saw a 0.7% increase in same-store sales. That figure encompasses sales versus the year before in stores open at least one year, which is considered the key retailing industry performance metric. Its total sales came to $199.4 million, up nearly 1% year over year.

The company also ended the month with $453 million available under its credit facility.

In announcing its recent sales and financial results last week, Bon-Ton also said that it may generate as much as $70 million in cash this year.

Some active names unchanged

Traders saw some names in the space trading busily, but with not much to show in the way of price moment.

One said that another department store giant, Sears Holdings, saw its 6 5/8% notes due 2018 about unchanged at 87 bid, 87½ offered.

He said though that there was "good volume" in the bonds of the Hoffman Estates, Ill.-based operator of the iconic Sears and Kmart department store chains.

He also saw "plenty of volume" in Springleaf Finance's 6.90% notes due 2017, pegging the Evansville, Ind.-based lender's bonds 78 bid, 78½ offered, which he called unchanged on the day.

And he said that Exide Technologies' 8 5/8% notes due 2018 were holding steady in a recent range of 81 to 811/2, which he called unchanged. He said there was "decent" volume, in the mid-teens, for the Milton, Ga.-based automotive and industrial storage battery maker's bonds.

Another trader, though, said he saw trades in those bonds as high as 84, up from 81¾ bid previously, though on no news.

"The bonds are just starting to catch up with the [overall stronger] market," he declared.

Dynegy does better

A trader said that bankrupt Houston-based power producer Dynegy Holdings' bonds "had a big day."

He saw the 7¾% notes due 2019 at 69 bid, 69½ offered, which he called up from Monday's levels.

About $14 million of the bonds traded.

There was no fresh news out on the company Tuesday, although Dynegy was recently directed by the court to renegotiate its bankruptcy plan under the guidance of a court-appointed examiner, who had charged that the company had participated in an improper asset transfer that allegedly defrauded its creditors before it filed for Chapter 11 protection last November.

Petroplus punished again

While most distressed and underperforming names were better on the day, in line with the overall rise in the junk market, traders saw continued erosion in the bonds of Zug, Switzerland-based energy refiner Petroplus.

A trader saw all of the company's bonds trading in a 33 to 35 bid context, which he called down a couple of points on the day from Monday levels between 35 and 37.

Those levels, in turn, had fallen from around 41 bid last week.

Petroplus, which slid into bankruptcy in January after being battered by tight margins, volatile oil markets, high crude prices and tightened credit standards, was forced to close its several refineries in Switzerland, France, Germany and England and seek buyers for some or all of those facilities.

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