TXU debt up as market digests exchange; chemical credits spark interest; broad market ends flat

By Stephanie N. Rotondo

Portland, Ore., July 19 - Distressed debt was about unchanged during Monday's session, as "winners and losers were pretty evenly split," according to a trader.

"It took a while to pick up," he added of Monday trading, noting that things "got busy in the last couple hours, bids started to creep back into the market."

Given such, he said he expected Tuesday to see better bids.

"It feels like there is room to run a bit," he said.

Energy Future Holdings Corp.'s bonds were among the day's gainers, with the bonds up "marginally" to a point better. The movement came after last week's announcement of a debt exchange aimed at cutting over a $1 billion in debt.

Meanwhile, a market source said investors were starting to look around at chemical credits such as Lyondell Chemical Co. and Tronox Worldwide LLC. The source opined that upcoming earnings could be behind the sudden interest.

TXU up, market digests exchange

Energy Future Holdings - better known as TXU Corp. - saw its debt improving in an otherwise unchanged marketplace, though a trader noted that volume was "not as much as I would have thought," with about $30 million to $40 million of the company's various issues trading.

The trader opined that the lack in action was due to "uncertainty over what you actually get" in regard to a recently announced debt swap.

The trader called the 10 7/8% notes due 2017 the "most active" of the trading issues, deeming them "marginally up" at 73 bid, 74 offered.

However, he noted that he saw a trade around 64 for the 10¼% notes due 2015, which he called "a fair bit lower." He speculated that the trade could be a mistake.

Energy companies dominate trading

Energy is definitely keeping people busy," he added, seeing a "reasonable amount" of ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 trading around 73 ½ bid, 74 offered.

"Those are creeping up ever so slowly," he said.

At another desk, a trader said the 10 7/8% notes were "probably about a point better" at 73½ bid, 74 offered.

Like the first trader, the second trader also saw energy names dominating. But while ATP bonds were slightly better to unchanged, the trader said Anadarko Petroleum Corp.'s 8.70% notes due 2019 slipped to 1041/2.

Under the terms of TXU's proposed debt-for-debt-and-cash swap, the Houston-based company is looking to exchange $2.7 billion of the 11¼%/12% senior toggle notes due 2017 and $1.78 billion of the 10 7/8% senior notes due 2017 for new debt and cash. The new debt consists of $2.18 billion of 10% senior secured notes due 2020 and the company is also paying up to $500 million in cash.

Exchange offer terms

For each $1,000 principal amount of notes tendered by the early deadline date, holders will receive $720 for the toggle notes or $785 for the 10 7/8% notes. If tendered after the early deadline, holders will get $670 for the toggle notes and $735 for the 10 7/8% notes.

The breakdown of new debt and cash per each $1,000 tendered will depend on how much is tendered by the early deadline. If all bonds are accepted by the early deadline, then holders of the toggle notes would get $134.33 in cash and $585.67 in new notes, while the 10 7/8% noteholders would receive $146.46 in cash and $638.54 in new notes.

However, no cash will be paid out to those tendering after the early deadline.

The early tender deadline is 5 p.m. ET on July 29. The offer expires midnight ET on Aug. 12.

On Monday, Fitch Ratings said it had placed TXU's ratings on review. The rating agency said that while a successful exchange would result in the removal of about $3.6 billion in old notes, the overall reduction in debt would likely not be enough to substantially improve credit metrics.

Chemical credits spark interest

A trader said that chemical names were starting to see some interest, speculating that upcoming earnings were encouraging would-be investors to pay attention.

The trader said "a bunch" of Lyondell Chemical's 8% notes due 2014 traded around "up and down" 104.

He also saw Tronox Worldwide's 9½% notes due 2012 bid for at 831/2. He said that while there were no trades in the credit, 84 bid, 85 offered was "probably the right price."

There was no news out on either chemical maker, nor had either one posted the date of their respective earnings releases.

Broad market ends flat

With the distressed debt market closing out Monday trading relatively unchanged, MGM Mirage paper typified that trend, as a trader said the bonds were "definitely flat on the day."

Still, the trader noted that trading in the notes was "reasonably busy," with the 7½% notes due 2016 ending at 82 7/8 and the 6 5/8% notes due 2015 at 823/4.

The trader also saw General Motors Corp.'s benchmark 8 3/8% notes due 2033 close unchanged around 321/2, on "$20-odd million" traded. Another trader quoted the issue at 32¼ bid, 32½ offered.

The second trader said that Visteon Corp.'s 7% notes due 2014 traded around 99, which he called "a few points lower" than the last round-lot trade. He added that he hadn't seen much movement in the bonds recently.

And, Sorenson Communications Inc.'s 10½% notes due 2015 were "still" in the mid-50s, the trader said.

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