Alpha Natural bonds come in ahead of new deal; Caesars debt rebounds; NII stays under pressure

By Stephanie N. Rotondo

Phoenix, May 13 - Trading in the distressed debt market was a mixed bag on Tuesday.

Alpha Natural Resources Inc. bonds were coming in on the back of word late Monday that the company planned to sell $400 million of new secured notes. Though he had not yet seen the new issue price, a trader said he heard demand for the new deal was huge.

The deal did eventually come after the market closed.

Caesars Entertainment Corp. was meantime mostly firm on the day, though there has not been any fresh news since the company announced its recapitalization plan last week.

After reporting weak earnings on Monday, NII Holdings Inc.'s debt continued to soften.

Alpha Natural weak on new deal

Alpha Natural priced $500 million of 7½% secured notes due 2020 on Tuesday.

The company first announced the deal late Monday, planning to issue just $400 million.

One trader said he was hearing there was huge demand for the new debt.

"I heard there was a huge chunk of orders," he said. "Like $2 billion."

After the deal was announced, market sources reported a surge in Alpha Natural's existing debt. As the market awaited the new issue on Tuesday, the bonds were coming in.

"They were just in a little bit," a trader said, seeing the 6¼% notes due 2021 falling half a point to 77 3/8. The 9¾% notes due 2018 were off a touch at 98 3/8.

The 6% notes due 2019 held in at 801/4, he said.

Another market source placed the 6¼% notes at 77½ bid, down over a point on the day.

Yet another source said the 6% and 6¼% notes were "fairly active, although the levels were unchanged for the part."

The Bristol, Va.-based coal producer intends to use proceeds to redeem near-term maturities. Any remaining funds will be used for general corporate purposes.

Caesars looks to rebound

Last week, Caesars Entertainment announced a recapitalization plan that stripped away some guarantees from its debt. In response, the company's debt drifted down.

Come Tuesday, the bonds were attempting to regain at least some of the lost ground.

A trader said there was "quite a bit of activity" in the 8½% notes due 2020, which he deemed up nearly 1½ points at 79 3/8. The 9% notes due 2020 were then called the day's "biggest mover" in all of the high-yield space, putting on "almost 2 points" to close around 80.

However, another market source saw the 10% notes due 2018 falling almost a point to 43¼ bid.

Caesars announced the recapitalization plan early last week. Under the plan, Caesars Entertainment Operating Co. sold a 5% equity stake to institutional investors. The "opco" will also secure a new $1.75 billion first-lien term loan, which will be used to redeem 2015 maturities and to repay existing bank debt.

As such, the company also announced a tender offer for the 5 5/8% and 10% notes due 2015.

As for the equity sale, in doing so the parent company released its guarantee of the opco bonds. That means that bondholders can no longer place a claim against the parent company's assets in the event of a restructuring. It could also give them less bargaining power in a restructuring.

Bondholders are already decrying the company's sale of four properties to its Caesars Growth Partners affiliate - another important feature of the recapitalization plan - alleging that it is a fraudulent transfer that strips assets from the opco.

The bondholders also claim that the opco is insolvent.

Bad numbers weigh on NII

NII Holdings' weak earnings continued to put pressure on the company's debt Tuesday.

A trader said the 10% notes due 2016 fell 1¼ points to 331/4. The 8 7/8% notes due 2019 declined nearly a point to 43.

A second trader said the 10% notes were "down a couple points" around 331/2.

The Reston, Va.-based provider of Nextel mobile services in Latin America and Mexico reported its first-quarter results on Monday. The results showed a subscriber loss of 52,000, as well as a higher churn rate and a weaker exchange rate.

Net loss was $376.1 million, or $2.19 per share. That compared to a loss of $207.5 million, or $1.21 per share, the year before.

Revenues declined 37.2% to $970.2 million.

Operating expenses fell 16.6% to $1.21 billion. Operating loss was $239.1 million, versus $79.5 million for the same quarter of 2013.

The company had $1.61 billion in cash and equivalents at the end of the quarter. At the end of fiscal 2013, it had $2.32 billion.

Total debt increased to $5.75 billion from $5.7 billion.

Texas Competitive loan breaks

Texas Competitive Electric Holdings Co. LLC's debtor-in-possession facility emerged in the secondary, with the strip of $1,425,000,000 funded and $1.1 billion delayed-draw covenant-light term loan debt quoted at par ¼ bid, par ½ offered on the open and then it moved up to par ½ bid, par ¾ offered, according to a market source.

Pricing on the term loans is Libor plus 300 bps with a 0.75% Libor floor and they were sold at an original issue discount of 99 5/8. The delayed-draw term loan has a ticking fee of half the spread from days 61 through 90 after close. If the delayed-draw term loan is terminated during the 90-day availability window, the original issue discount on the debt will be paid to lenders.

During syndication, the Libor floor was revised from 1% and the discount was tightened from 991/2.

The company's $4,475,000,000 24-month DIP facility (Baa3/BB+) also includes a $1.95 billion revolver.

Proceeds will be used for liquidity, adequate protection payments, restructuring costs and general corporate purposes. The delayed-draw loan will backstop letters-of-credit posted to the Railroad Commission of Texas.

Citigroup Global Markets Inc. is leading the deal for the Dallas-based energy company.

Fannie, Freddie gain

Fannie Mae and Freddie Mac preferreds were getting a boost on Tuesday as the regulator overseeing the agencies laid out new policies aimed at easing the mortgage markets.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) rose 29 cents, or 2.64%, to $11.27. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) was up hugely at mid-morning, rising 42 cents, or 4.02%, to $10.87.

The latter issue closed at $10.94, up 49 cents, or 4.69%.

In his first speech since taking over the position of Federal Housing Finance Agency director in January, Mel Watt said that the mortgage guarantors would not impose a time restriction on when banks must buy back faulty loans. Watt also said the agencies intend to relax mortgage payment history requirements.

Both proposals are aimed at loosening up the mortgage credit market and to entice new homebuyers.

Sara Rosenberg contributed to this article

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