Forest Oil slide deepens; Momentive bonds down again; Penney's paper pops on improved earnings

By Paul Deckelman

New York, Feb. 27 - There was no shortage of credits for distressed-debt investors to get involved with Thursday. Several less-than-stellar names were seen clearly on the downside in busy trading.

Forest Oil Corp.'s bonds - not previously thought of as a distressed credit - were attracting attention from sector investors. The bonds continued to nosedive for a second consecutive session in heavy trading as the financial markets reacted badly to the energy company's poor quarterly earnings and pessimistic projections.

Momentive Performance Materials, Inc. had no earnings out, but its paper was getting pounded for a third straight session as part of an overall recent slide in the name on fears of a possible debt restructuring or a default.

NII Holdings Inc.'s bonds were also among the big losers, even though there was no fresh negative news seen out about the international wireless service provider.

But J.C. Penney Co. Inc.'s bonds jumped by multiple points, given a boost by the retailer's improved quarterly results.

Other retailers seen doing well included Sears Holdings Corp., which also had improved earnings out, and Bon-Ton Stores Inc.

Forest chopped down more

Probably the busiest name among the distressed credits - in fact in the larger junk bond market itself - was Forest Oil. A trader saw its 7¼% notes due 2019 "right at the top of the charts," with over $80 million of those bonds having changed hands. He quoted them down 1 point at 88 bid, 88½ offered, which came on top of the 8 or 9 point loss recorded on Wednesday that took the bonds down from near par to about 90 bid, with volume topping the $60 million mark.

He meantime saw its 7½% notes due 2020 down 5 or 6 points at 84¼ bid on volume of about $26 million or $27 million.

That followed Wednesday's 81/2-point plunge to below 90, although that decline was on just a fraction of the volume seen in the 7¼% notes.

And "Forest is not done losing," he warned. He saw one big trade in the 7¼% notes that took them down to 78¾ before the bonds bounced off that interim low to come back to around 88.

The bonds began sliding Wednesday after the Denver-based independent oil and natural gas exploration and production company reported fourth-quarter earnings per share of 2 cents for the quarter, missing analysts' consensus forecast of 3 cents.

Its revenues came in at $88.49 million, well below Wall Street expectations in the $96 million area.

Compounding investor angst, Forest reported a sharp decline in proved reserves at year's end from its year-earlier figures, largely due to asset divestitures, which were only partially offset by new discoveries.

And on their conference call, company executives indicating a switch in focus away from its activities in the Eagle Ford Shale, a petroleum-rich geologic formation in Texas drilled by many major oil companies, further agitating investors.

But while Forest's New York Stock Exchange-traded shares swooned by more than 37% on over 13 times normal volume on Wednesday, on Thursday, the shares were actually up by 6 cents, or 2.99%, to end at $2.07, with 13.7 million shares traded, three times normal volume. Some cynics dismissed the rebound as a classic dead-cat bounce.

Momentive mauled again

Elsewhere, a trader said that "Moment" - i.e., Momentive Performance Materials - "keeps going on. That seems to be the active name of the last few days."

He saw its 9% second-lien notes due 2021 down between 1½ and 2½ point, at bid levels between 83½ and 841/2.

Albany, N.Y.-based specialty materials manufacturer Momentive's bonds have been sliding for days on fears the company will either have to restructure its $3.3 billion of debt or face a possible default somewhere down the line. The fears have been stoked by a recent warning to that effect from Standard & Poor's.

After falling 2 points on Wednesday, the 9% notes "weakened up further today," the trader said, with "plenty of volume," which he estimated at more than $30 million.

At another desk, a market source counted more than $33 million of those bonds having traded, placing them high up on the Most Actives list, and the bonds down 2½ points at 84 bid.

The first trader said the 11½% senior subordinated notes due 2016 were ending down around 27 or 28 bid, a loss of 3½ to 4 points, with more than $10 million having traded.

Another trader marveled that "a couple of days ago, they were in the 70s, and now they're around 28 to 32."

Momentive's secured 8 7/8% notes due 2020 and its 10% notes, also due in 2020, were holding steady in a 106 to 107 context, which he called virtually unchanged.

"They're just hanging there," a trader said.

The carnage kicked off back on Feb. 11, when S&P dropped Momentive's credit rating to CCC- and gave it a negative outlook. The agency noted that free cash flow has been negative for nine quarters. In the third quarter alone, the company burned through $80 million.

With $3.3 billion of outstanding debt on Momentive's balance sheet, S&P analysts Cynthia Werneth and Paul Kurias cautioned that "prospects for sufficient improvement to stave off a payment default or debt restructuring within the first three quarters of 2014 are dim."

They added that "we expect the company to continue to generate negative free operating cash flow, causing liquidity to dwindle."

As the bonds have eroded, their holders have sought help, with the 11½% noteholders reportedly hiring Blackstone Group LP and Stroock & Stroock & Lavan LLP as restructuring advisors, while the 9% noteholders were said to have retained Houlihan Lokey and Milbank, Tweed, Hadley & McCloy LLP as advisers.

NII bonds drop

NII Holdings' bonds were also among the big losers Thursday, although a trader said he saw no fresh news out about the Reston, Va.-based company, which sells wireless service in Mexico and South America under the Nextel brand.

Its NII Capital Corp. 10% notes due 2016 were seen having dropped more than 5 points on the day to go home at 56¾ bid, with over $23 million of the bonds having been traded, putting the credit high up on the Most Actives list.

Its 7 5/8% notes due 2021 were almost as busy, with over $22 million changing hands. They were down around 1½ points, to just under 42 bid.

And NII's 8 7/8% notes due 2019 eased by about 5/8 point to finish at 49 3/8 bid, with over $7 million traded.

Penney powers up

The big winner of the day was surely J.C. Penney, whose bonds and shares firmed smartly after the normally underperforming Plano, Texas-based department store retailer reported improved quarterly results.

Its busiest issue was the 7.4% bonds due 2037. More than $15 million of the bonds traded, rising 5 points on the day to end at 73 bid.

Penney's 6 3/8% bonds due 2036 were 3 points better at 71 bid on volume of over $6 million, while its 5.65% notes due 2020 gained 5¼ points to close at 78 bid, with over $4 million having changed hands.

Penney's NYSE-traded shares meantime zoomed by $1.51, or 25.34%, to $7.47 on volume of 114 million shares, which was not quite four times the usual turnover.

Penney - which shook up management last year in an effort to shake off the disastrous ill effects of previous management's unsuccessful changes in long-time policies - reported that same-store sales, a key retailing metric, rose by 2%, versus a year-earlier 32% plunge. In fact, it was the first such improvement in the key metric since back in 2011.

Penney's good showing may have rubbed off on some of its sector peers. Hoffman Estates, Ill.-based Sears, which reported a narrower loss versus a year ago, also improved, its 6 5/8% notes due 2018 gaining 1½ points to end at 941/2.

Bon-Ton Stores' 8% notes due 2021 edged up slightly to the 95 bid level on volume of over $13 million.

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