Tronox paper jumps up; ATP Oil debt one of day's few losers; MGM Mirage notes trade actively

By Stephanie N. Rotondo

Portland, Ore., July 14 - The distressed debt market "more than hung in there," a trader said Wednesday, even as the stock market seesawed.

"The market was a little bit higher," the trader said. "Volume was a little bit less, but still pretty good.

"It's just plodding along," he added.

Tronox Worldwide LLC's debt was called one of the day's more notable names, as the bonds moved up 4 to 5 points. According to one source, the gains were due to a potential new reorganization plan that is more favorable to the company.

On the negative side, ATP Oil & Gas Corp.'s notes were deemed one of the day's few decliners. Traders saw the bonds losing 1 to 2 points during the session, just one day after equity analysts downgraded the oil producer's stock.

Skilled Healthcare Group Inc. was also going downward, according to a source. The bonds fell over 3 points, ending a recent rally just one day before an interest payment comes due.

MGM Mirage traded actively, though there wasn't any news out to explain the surge in activity. Despite the action, the bonds were seen just a tad better - if not unchanged - than previous levels.

Tronox paper jumps up

Tronox Worldwide's bonds were dubbed "definitely one of the more notable names" by one trader as the traded up about 4 to 5 points on the day.

The trader said the 9½% notes due 2012 traded up to around 83.

Another trader said the credit was "a real active one," seeing the bonds ending better at 82½ bid, 83½ offered.

According to the second trader, the Oklahoma City-based producer of titanium oxide pigments was "allowed to negotiate a revised plan that is kind of more in their favor.

"I think they have to pay more to the EPA, but it doesn't dilute the equity as much," he explained.

Last week, the company filed its plan of reorganization and related disclosure statement. Under that plan, trusts would be set up to provide for the company's environmental liabilities, while unsecured creditors would receive 80% to100% of their claims. Current equity holders would see their securities cancelled, but if they approved the plan, they would receive warrants for new stock.

ATP one of day's losers

ATP Oil & Gas debt was "very active again," a trader said, adding that the name was "one of the very few things that went down [during the midweek session]."

The trader said the 11 7/8% notes due 2015 "touched" 74 during the trading day, only to close lower at 71¾ bid, 72¾ offered.

Another trader said he initially saw a market of 73 bid, 73 ½ offered. By the end of the day, however, he saw the notes "straddling" 72."

On Tuesday, analysts from JPMorgan & Chase Co. and Jefferies took negative actions against the Houston-based oil company's equity. The analysts based their actions on the belief that ATP will need to raise more money than expected in order to generate free cash flow in 2012.

The actions were also due in part to expected production delays due to the moratorium on offshore drilling.

Elsewhere in the sector, OPTI Canada Inc.'s 7 7/8% notes due 2014 were unchanged around 89, according to a trader.

The trader noted that volume in the bonds was significantly less than that seen on Tuesday. In the previous session, he said about $30 million of the company's combined bonds changed hands, while only a couple million turned over on Wednesday.

With the company set to release quarterly results on Thursday, the trader opined that "I think that's one of those where people are more likely to wait [until after the results to make any moves]."

Skilled Healthcare slips

A trader saw Skilled Healthcare Group's 11% notes due 2014 down 3½ points on the session from Tuesday's levels, to close at 79½ bid, bringing to a halt the recent firming trend in the Foothill, Ranch, Calif.-based nursing home operator's bonds, although he noted that it was "just one or two trades."

He also pointed out that the company "has a bond payment [due] tomorrow [Thursday], I don't know if they're going to make it or not. Maybe they are."

Another trader who also saw the drop noted that the issue is relatively small as far as junk bonds go, at just $129.4 million.

"When you have these deals that are small in size but have a little bit of extra yield, and the s-t hit the fan, you can't get out of these because nobody cares to do any work on them because there's just not enough paper to buy to make it worth their time.

"You've got these portfolio managers who say 'I'm getting 50 basis points more because of these small deals, but when the cycle ends and these things crap out, those guys get canned because they can't get out of these positions. You see it happen every couple of year, because nobody seems to learn."

Notes slide on verdict

He noted that the bonds had traded as high as 104 back on July 1. That was several days before a California jury hearing a big class-action lawsuit against the company alleging that it understaffed its facilities awarded the plaintiffs a whopping $671 million in statutory and compensatory damages. And the jury could still sock the company with millions more in punitive damages.

The trader said, "It was one of those things that as long as nobody wanted to sell, everything was great. Then, when someone wants to sell, they can't get out and things crater." The bonds traded as low as the high-60s the day after the verdict.

"They're all sophisticated accounts, but the guys who have been around [say] that if it's under a certain amount, they're just not touching it - liquidity is king."

Skilled Healthcare's shares (NYSE: SKH) fell 24 cents, or 9.64% on Wednesday to $2.25. Volume of 914,000 shares was about 35% above average.

The company's stock plunged after the July 7 verdict but then had been rising over several sessions after that, on hopes that a more affordable settlement might be reached between the parties or that the judge in the case might slash the huge damage award down to more reasonable levels.

MGM trades actively

MGM Mirage paper was "really active," but only "slightly better," according to one market source.

"Prices were slightly better, but not hugely so," he said, noting that about $50 million to $60 million of the company's various bond issues traded.

He pegged the 7½% notes due 2016 at 82½ bid, 83 offered, adding that the issue was "up the most, maybe up a half." He also saw the 6 5/8% notes due 2015 at 82 bid, 82½ offered, though he called that "kind of right where it has been."

At another desk, a trader said there was "certainly some activity" in the casino operator's debt. He called the 7½% notes up "about a point" around 83, while placing the 6 5/8% notes around 821/2.

There was no fresh news out on the Las Vegas-based company.

Paul Deckelman contributed to this article

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