Distressed market trading stalls on U.S. debt woes; earnings driving losses; GenMar down again

By Stephanie N. Rotondo

Portland, Ore., July 29 - Distressed debt was trending weaker Friday, in line with the overall financial markets as investors waited to see what lawmakers in Washington, D.C. will do with the debt ceiling.

"I was surprised that the markets were not getting pummeled with the GDP revisions," one trader said, referring to news that the government revised first-quarter figures to a 0.4% increase from a previously reported gain of 1.9%.

Second-quarter GDP was also weak at 1.3%.

"Maybe people are optimistic that the House and Senate votes [on the debt ceiling] get pushed through this weekend," he speculated.

"People are just waiting to see what happens [with the U.S. debt ceiling debate]," said another trader, adding that it was a quiet day as a result.

But another trader noted that Trace volume was more than $1 billion.

"It seems quiet, but stuff is getting done," he surmised.

For distressed debt, earnings were the key driver during the session. General Maritime Corp., which reported late Wednesday, was continuing to lose steam after posting a wider-than-anticipated loss.

The debt lost about 4 to 5 points on Thursday and another 4 to 5 points come Friday, according to traders.

Energy Future Holdings Corp. also reported a much wider loss, along with a decline in revenues, pushed the company's bonds down at least 2 points on the day.

GenMar remains depressed

General Maritime's 12% notes due 2017 continued to fall Friday in an extended response to the company's weaker second-quarter earnings.

The results were reported after the bell Wednesday and a conference call was held Thursday morning.

A trader said the paper was down 4 to 5 points to 64 bid, 65 offered. Another trader called the issue 4½ points weaker around 65.

A third trader noticed the pounding GenMar took, noting that the bonds had traded as high as 71 Thursday, but fell to 64½ on Friday.

He remarked that "the tanker world is over-supplied" with ships "and the rates are getting killed.

"Maybe people didn't like what they heard on the conference call," he added.

For the recent quarter, the New York-based oil containership company posted a wider-than-anticipated net loss of $24 million, or 21 cents per share. That compared to a net loss of $14.3 million, or 25 cents per share, the year before.

Revenues got knocked down 12.2% to $53.6 million.

Analysts polled by Thomson Reuters were expecting a loss of 27 cents per share on revenues of $56.05 million.

"General Maritime has continued to take important steps to strengthen its balance sheet and capital structure, which has enhanced the company's ability to operate in a challenging market environment and improved its future prospects," said John Tavlarios, president and chief executive, in the earnings release.

"During the second quarter and into the current third quarter, General Maritime has completed a number of important transactions aimed at increasing the company's liquidity and financial flexibility."

During the call Thursday, Tavlarios also expressed optimism about the second half of the year.

"We believe conditions as we move through the second half of 2011 will be better than those in the first half; that a more pronounced recovery in late 2011 is a credible scenario," he said in the call.

"Most importantly to our shareholders and debt holders, whatever the slope of the curve, General Maritime remains well positioned with approximately 42% coverage for 2011. This enables us to generate contracted cash flow, while also leaving opportunity to profit from rising rates."

Cengage plummets after earnings

In other earnings news, Florence, Ky.-based Cengage Learning Holdings II LP reported weaker earnings, which also sent their bonds down about 5 points, according to a trader.

He saw the 10½% notes due 2015 closing in the mid-80s.

For its fourth fiscal quarter, the learning and research solutions company posted revenues of $279.2 million, down 14.5% year over year. Adjusted EBITDA fell 13.9% to $201.5 million.

The company said the decline in revenues was due in part to declines in its domestic and international units and the lower EBITDA was blamed on lower revenues.

For the full year, revenues dropped 7% to $1.87 billion.

Cash and equivalents, however, rose to $34.2 million from $27 million in fiscal 2010.

TXU weakens on results

Energy Future Holdings also reported numbers Friday. A wider loss pushed the company's bonds down about 2 points, a trader said.

He saw the 10¼% notes due 2015 trading around 48.

The power producer reported a net loss of $705 million, compared with $426 million the year before. Revenues fell 16% to $1.68 billion, due in part to business and residential customer losses.

Interest and related charges meantime increased to $1.3 billion during the quarter, compared with $179 million for the same quarter of 2010. The increase was due in part to the company's attempts to extend debt maturities.

Also, the interest costs ate up a majority of the company's revenues.

Earlier in the month, Dallas-based TXU - as the company is more commonly known as - said that it might have to shutter some of its plants in Texas because of a new Environmental Protection Agency rule that goes into effect on Jan. 1. The company has said it does not have enough time to make the plants compliant.

Paul Deckelman contributed to this article

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