Distressed market ends week quietly, broadly lower; ATP stumbles again, Chesapeake calms

By Paul Deckelman

New York, May 18 - The distressed-debt market closed out the week Friday broadly lower, in line with a downturn in the overall high-yield market.

However, activity levels were mostly quiet.

One of the few distressed names trading in any kind of volume was ATP Oil & Gas Corp. The offshore energy exploration and production company's bonds were lower on the session, pretty much fitting their week-long pattern.

In contrast, Chesapeake Energy Corp.'s bonds, which were jumping around all week on heavy volume, were seen calming down considerably as the week finished up. Traders saw the big natural gas company's bonds little moved from recent levels.

That also was the case with Residential Capital LLC, whose bonds gyrated earlier in the week after the mortgage lender's Chapter 11 filing.

Solar convertibles like Suntech Power Holdings Co. Ltd. were mostly lower after the United States' decision Thursday to impose a 31% anti-dumping tariff on Chinese solar-panel makers. But the reaction was not as pronounced as might be expected given the relatively high number of convertible issuers in the space.

The broad market in distressed names like Eastman Kodak Co. and NewPage Corp. was mostly lower.

ATP moves lower again

A trader said that ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 continued to move lower on Friday, the latest in a series of downturns.

He quoted the Houston based offshore energy company's bonds off 1½ points on the day, closing at 59.

He said that $26 million of the notes changed hands, making it one of the more active junk issues, although well down from the volume levels seen earlier in the week.

ATP's bonds have been under pressure since last week due to investor response to disappointing quarterly results and financial projections, followed by a conference call that did not do much to restore investor confidence.

At that time, the bonds were still trading in the mid-70s, but they got hammered down successively, bottoming at lows around 60 on Tuesday and again on Thursday, in response to the numbers.

In the latest period, ended March 31, ATP recorded a net loss attributable to common shareholders of $145.1 million or $2.83 per basic and diluted share - wider than the $119.5 million or $2.34 per basic and diluted share of red ink seen a year ago, in the 2011 first quarter.

Revenue of $146.6 million fell short - by a yawning $32 million - of Wall Street expectations.

Chesapeake calms down

Also in the energy arena, Chesapeake Energy's bonds were not among the junk market's volume leaders, barely even making the Top 20, let alone the Top Five, a trader said.

"They kind of settled down," he declared, quoting the Oklahoma City-based natural gas company's 6 5/8% notes due 2020 seeing about $12 million of Chesapeake's bonds having changing hands.

He saw the bonds up ¾ point, at 90¼ bid.

A second trader saw the bonds trading in a 90¾ bid, 91 offered range.

Chesapeake's secured 7 5/8% notes due 2013 traded at 100¾ bid, on volume of $13 million.

Another trader saw Chesapeake's 6.775% notes due 2019 at 92 bid, which was in line with where they were Thursday.

He saw volume on that issue well down from where it was earlier in the week.

Chesapeake's bonds have been churning all week after the company announced that it was delaying a planned asset sale so as not to fall out of compliance with credit facility covenants.

In the convertibles market, Chesapeake's paper was seen ending the week mixed, having lost ground earlier on both an outright and a dollar-neutral basis as both financial and management troubles continued to weigh on the company.

But Friday brought a little relief as the securities lifted some on higher natural gas prices.

ResCap quiets down

A trader said that Residential Capital's bonds were "on the quiet side today."

He saw the bankrupt Minneapolis-based mortgage lender's 9 5/8% notes due 2015 trading with "a 93-handle - but not a lot of volume."

That was in sharp contrast to volume levels in the $40 million or $50 million range earlier in the week, when the bonds had lost about 4 or 5 points after Res Cap filed for Chapter 11 protection from the U.S. Bankruptcy Court in New York in an effort to clear up its troubled finances.

Suntech Power down

Suntech Power's 3% convertibles due 2013 traded at 64 bid, 65 offered during the session, while Suntech shares ended the day down 13 cents, or 6%, at $2.

The convertible paper priced in the 70s just a few weeks ago.

That slide followed a U.S. Commerce Department decision to impose a 31% anti-dumping tariff on Suntech Power and other Chinese solar exporters.

The ruling was preliminary, but likely to hold up even if it is challenged later this year, a New York-based analyst said.

The level of tariff may be cut some, but it's likely to remain "something north of 20%," the analyst said.

Nevertheless, the lack of response by U.S. and Chinese solar convertibles might be explained by the fact that there have been a lot of different problems in the sector. "The U.S. market wasn't going to solve them," the analyst said.

The ruling came in response to complaints by solar-energy companies that their Chinese rivals were selling solar panels in the U.S. at below-market prices.

The anti-dumping penalties come on top of U.S. anti-subsidiary tariffs ranging from about 3% to 5% levied in March on Chinese solar companies.

As for retaliation from China for the anti-dumping tariffs, it's likely there will be retaliation "in some way, shape or form," the analyst said.

But there are multiple avenues by which that could be pursued. "They have some other investigation underway that U.S. companies are dumping in their market," the analyst said.

Rebecca Melvin contributed to this report

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