Walter Energy's new PIK notes tank as BofA says coal prices to stay weak; NII, Caesars end down

By Stephanie N. Rotondo

Phoenix, March 20 - Coal bonds were again taking focus in the distressed debt sector on Thursday, as Bank of America published a report opining that the industry will remain in a decline for several years to come.

Walter Energy Inc. "got hit the worst," a trader said, just one day after the company priced two new deals.

The Birmingham, Ala.-based metallurgical coal producer sold a $200 million add-on to its 9½% note due 2019 at 101½ on Wednesday. Come Thursday, the issue traded down to 101.

Another $350 million of 11% senior secured second-lien pay-in-kind toggle notes due 2020 priced at par. But a trader said the new issue "performed miserably," falling to 94.

"It might have even traded lower," he said.

One trader said he was amazed that the PIK notes had such a huge downfall. "To be down 5 or 6 points right out of the ballpark...," he said.

At a price of 941/2, the yield to call would be 14.85% and the yield to maturity would be 12.3%, according to another trader, suggesting "buyers remorse."

As for the company's other issues, the 9 7/8% notes due 2020 declined 4 points to 70 as the 8½% notes due 2021 dumped 6 points, closing around 64.

Elsewhere in the coal space, Alpha Natural Resources Inc.'s 6¼% note due 2021 lost a point to end around 761/2.

In an analysis released Thursday, BofA analyst Timna Tanners noted that the price of metallurgical coal stands at $143 per ton in the first quarter, the lowest price since 2010. Tanners wrote that such prices can be expected for the next several years due to excess supply, the falling marginal cost of production and companies' aversion to cutting production.

NII, Caesars soften

NII Holdings Inc. and Caesars Entertainment Corp. continued to be weak in Thursday trading.

A trader saw NII Holdings' 7 5/8% notes due 2021 losing almost a point to 311/4, while the 10% notes due 2016 dropped almost 2 points to 431/2.

As for Caesars, the 11¼% notes due 2017 held steady around 94 3/8, but the 10% notes due 2018 slipped half a point to 411/2.

Those weren't the only names taking hits during the session: American Apparel Inc.'s 13% notes due 2020 fell over 3 points to around 80.

Genco makes payment

Genco Shipping & Trading Ltd. made a $3.1 million coupon payment on its 5% convertible notes due 2015, the company said in an 8-K filing on Thursday.

The payment was originally due on Feb. 18.

"It's interesting," a trader said. "There were rumors they were going to file for bankruptcy."

Those rumors could still prove true, as the company said in the regulatory filing that it was continuing talks with creditors regarding a potential restructuring.

The trader said the bonds "haven't traded much," though he believed they went out 70 bid, which would have been up 3 to 4 points on the day.

The stock was meantime "very active," the trader said. The equity (NYSE: GNK) fell 37 cents, or 22.98%, to $1.24.

Paul Deckleman contributed to this article

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